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How To Become a
Successful CFD Trader
7 Powerful Secrets to
Gain Financial Freedom Fast!
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Provider of This CFD Educational Booklet ............................................................................... 3
Disclaimer ............................................................................................................................. 3
Authors ..................................................................................................................................... 4
Jeff Cartridge ........................................................................................................................ 4
Ashley Jessen....................................................................................................................... 5
1. Ways to Make Serious Money with a Small Investment ....................................................... 6
CFDs vs Stock …… The Winner Is....................................................................................... 8
CFDs - Trade With Other People’s Money.......................................................................... 11
7 Secrets You Should Know Before You Even Think Of CFD Trading ............................... 12
Best CFD Trading Books .................................................................................................... 14
2. Can I Really Double My Money In A Month Trading CFDs?............................................... 17
441% in 6 Weeks ................................................................................................................18
Day Traders Get Suckered In Again - Your Ideal Trading Time Frame .............................. 18
Did You Truly Come Here To Make Money Trading CFDs? ............................................... 19
3. I Lost Money Hand Over Fist Until I Discovered This 1 CFD Trick ..................................... 23
The Thrill of Chasing Large Wins........................................................................................ 23
The Foundation of Successful Trading ............................................................................... 24
Why It’s Easy For Investors To Manage Risk ..................................................................... 26
How to Maximise Your Returns and Minimise Your Risk .................................................... 26
Discover How to Triple Your Profits With Less Effort .......................................................... 29
4. Two Numbers That Will Guarantee Your Success ............................................................. 31
Ex-Trader Reveals His Secret for CFD Trading Success ................................................... 34
How to Dramatically Improve Your CFD Trading Results ................................................... 35
My Results with This Controversial System ........................................................................ 36
5. A Simple Timeless Method for Huge Gains........................................................................ 39
How to Find Stocks That Will Double In Value.................................................................... 41
Discover How to Stack the Odds in Your Favour Trading CFDs......................................... 43
Scam Alert - Forex Trading Robot Scam ............................................................................ 46
The Ultimate Strategy That Works Across All Time Frames ............................................... 50
How to Have 15 Winning Months In A Row ........................................................................ 55
6. Discover the Truth Behind CFD Brokers ............................................................................ 56
Learn How to Beat CFD Brokers at Their Game................................................................. 57
The Best CFD Broker.......................................................................................................... 58
Automate Your Trading So You Can Enjoy More Free Time .............................................. 59
Discover the Single Technique that Saved One Trader from Losing Everything ................ 61
7. Are Successful Traders Born or Bred? ............................................................................... 63
What the Top 3% of Profitable Traders Know..................................................................... 64
Hedge Fund Manager Shares the Secrets of His Success ................................................. 65
Learn the Truth About CFD Trading From A Private Trader ............................................... 66
Summary ................................................................................................................................ 67
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Page 2 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Provider of This CFD Educational Booklet
The provider of this educational booklet is Financial Fusion Ltd ABN 12 123 596 498 which is an
authorised Representative of Pavilion Securities that holds an AFSL licence number 291466.
The intellectual property that is contained in this booklet is the property of LearnCFDs.com and
is intended to be general advice only. Before acting on any of the recommendations in this
document you are advised to seek specific financial advice.
Disclaimer
Jeff Cartridge/Ashley Jessen, owners of Learncfds.com and any of their affiliates, will not be
held responsible for the reliability or accuracy of the information available in this document. The
content provided is put forward in good faith and believed to be accurate, however, there are no
explicit or implicit warranties of accuracy or guarantees that the readers of this course will make
profits trading CFDs, forex or indices. The reader agrees not to hold Jeff Cartridge or Ashley
Jessen, or any of its affiliates, liable for decisions that are based on information from the How
To Become A Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom course
notes.
Margined CFDs, forex and indices are extremely risky form of investment and is only suitable for
individuals and institutions capable of handling the potential losses it entails. The funds in an
account that is trading at maximum leverage may be completely lost if the position(s) held in the
account experiences one percent swing in value. Given the possibility of losing one's entire
investment, speculation in the CFD, forex or indices market should only be conducted with risk
capital funds that, if lost, will not significantly affect the investor’s financial well-being. There is
no guarantee that readers of this document or our websites will make money. Readers use the
information and links entirely at their own risk. Jeff Cartridge and Ashley Jessen owners of
LearnCFDs.com do not accept any liability in respect of any loss or damage arising from or in
connection with any use of the information on or accessed through this document or our
company websites. All intellectual property rights in this report remain the property of
LearnCFDs.com
© 2009 Copyright LearnCFDs.com
All Rights Reserved. No Part of this publication may be reproduced or transmitted in any form or
by any means, electronic, mechanical, recording or otherwise without the prior permission of
LearnCFDs.com
www.learncfds.com
Page 3 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Authors
This book was written and published by Jeff Cartridge and Ashley Jessen.
Jeff Cartridge
Jeff is a private trader and investor with a wide variety of investments in shares, CFDs and
property.
Jeff has educated tens of thousands of people in Australia and New Zealand
presenting for E*TRADE, CMC Markets, Cube Financial, Trading and Investing Expo and
Pavilion Securities and has partnered with Ashley Jessen to create www.LearnCFDs.com
Jeff has been featured in and written many articles for the major publications including:
The Australian, Courier Mail, Smarter Investor, Financial Review, Your Trading Edge and
www.compareshares.com.au
Outside of the markets Jeff has been actively involved in a variety of different charities including
offering free presentations for Butterfly Kids, eDay computer recycling and he has been
instrumental in the development of the Nova Montessori preschool and primary school in
Christchurch. Jeff owns the land and buildings the school operates from and has provided
many hours of time and donations to the Trust during the last ten years.
www.learncfds.com
Page 4 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Ashley Jessen
Ashley has been involved in trading the Australian stock market since the year 2000 which just
happened to be the year of the famous tech market crash. Since then Ashley has conducted
hundreds of seminars on trading strategies at trade shows, money expo's, ATAA meetings,
leading education companies and has taught thousands of traders safe and effective trading
techniques. In addition to this Ashley has conducted over 300 one on one coaching sessions for
traders to align their trading with their goals.
From a trading point of view Ashley started off trading shares, then moved
to options trading and was one of the first handful of people to trade CFDs
in Australia (Ashley was one of the first 10 people to open a trading
account back in mid 2002). Forex also played a part of Ashley's portfolio in
2005 onwards trading mechanical trading systems.
During 2002/03 Ashley ran a private trading room in Bondi Junction where
a group of traders traded their own funds using CFDs and learnt quite a lot
about what it takes to be successful trading the markets using CFDs.
Ashley has featured in several CFD trading books including Cat Davey's
book titled “Making money from CFD trading”, Jeff Cartridge's book titled
“Supercharge your Trading with CFDs” and Eva Diaz's book titled “Real
Traders Real Lives Real Money”.
LearnCFDs.com has been a dream of Ashley's since 2005 and has now become the Number 1
independent CFD Education portal in the world with thousands of hits every month.
www.learncfds.com
Page 5 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
1. Ways to Make Serious Money with a Small Investment
Welcome to the world of Contracts for Difference (CFDs) where you can truly turn CFDs into
Cash for Dreams. CFDs allow you to accelerate your way to wealth by providing you the
opportunity to leverage your stock market opportunities. Contracts for Difference are a
revolution in the trading world providing you with the opportunity to trade almost any underlying
instrument on any market in the world. The growth of CFD trading has been phenomenal with
some CFD Providers turning over in excess of $1 trillion per annum. It is very likely that CFD
trading will continue to grow in popularity and thrive in today’s volatile markets.
Most financial products have been around for decades, if not hundreds of years. For example,
futures markets have a history dating right back to 1710 when the Japanese traded rice on the
world’s first official futures exchange. CFDs are a relative newcomer in the financial markets
and are making great headway. In fact since CFDs launched to the retail public in the year
2000 the interest has been staggering. No-one could have ever predicted the pace at which the
investing public took to CFD trading and it continues to rapidly expand around the world.
CFDs were first introduced in the early 1990's by a London derivative brokerage firm called
Smith New Court which was later bought out by Merrill Lynch. Initially CFD trading was a way
for clients to short sell the market whilst using leverage and as an added bonus, clients were
able to avoid stamp duty, thereby reducing their costs even further.
GNI Touch, since bought out by MF Global, was the first company to introduce CFDs to the
retail public back in the year 2000 and since
that steady start, they have literally exploded
around the world. In 2007, an investment survey
by Investment Trends noted that CFDs were
growing at 100% per year (in Australia) and
were looking to continue their staggering growth
in the near future. CFD providers have now
expanded globally with CFDs available in
Australia, UK, Ireland, Sweden, Norway,
Germany, Italy, Spain, Canada, Singapore,
Japan and China.
One of the latest
developments
in
CFDs
has
occurred
in Australia with the first regulated CFD
exchange opening its doors in November 2007.
A CFD is a “Contract for Difference”, which
means you agree to settle for the difference
between your entry and your exit price. If you
buy a CFD contract on a stock at $31 and sell it
at $33 you get to keep the difference of $2 per
CFD. If you buy a CFD contract on a stock at
$31 and sell it at $29 you pay the difference.
With the pricing identical to the underlying
instrument there is no complex pricing model to
learn. If the stock is trading at $31 the CFD will
be trading at $31.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
When you purchase a Contract for Difference (CFD) you are not required to have $20,000 to
enter a $20,000 position. All you require is a small deposit known as a margin. If the stock you
have purchased has a margin requirement of 5% your initial outlay will be $1,000. A gain or
loss of $2,000 on the position is a return of plus or minus 200% on your margin. This is known
as leverage and CFD leverage is available up to 100:1.
But remember CFD leverage can be a double edged sword amplifying both gains and losses. If
you buy 1000 CFDs at $20 the position you hold has a face value of $20,000. You now make a
gain, or loss on the full $20,000 position. So a move to $22 results in a $2,000 gain and a drop
to $18 results in a $2,000 loss.
Because you agree to settle for the difference when trading CFDs there is no restriction on
buying or selling first. Unlike shares, where you must buy something before you can sell it, you
can sell a CFD first and then buy it back to exit the position. You get to keep (or pay) the
difference. The CFD broker arranges all the mechanics of borrowing the shares, if required, so
you can sell them. All you do is push sell, instead of buy, to sell short. Selling a stock at $10
and buying it back at $8 means you keep the difference of $2 per share, while selling at $10 and
buying back at $12 means you pay the difference.
Contracts for Difference are truly a revolution in the trading world and allow retail traders to
access any market in the world and trade at a time and a place that suits them. The flexibility
and low execution costs make them a fantastic trading instrument that can allow you to turn
CFDs into Cash for Dreams.
www.learncfds.com
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
CFDs vs Stock …… The Winner Is
For many stock and options traders the deal offered with CFDs just seemed too good to be true.
When CFDs first launched In Australia you could trade the Top 200 ASX shares at 5% margin
with NO BROKERAGE. Without pointing out the obvious, the advantages of CFD
trading versus stock trading were very clear:
9
9
9
9
Zero Brokerage
Access to the top 200 ASX Shares
5% margin or up to 20 times leverage
Free trading platform
Unfortunately for traders the zero brokerage whilst trading CFDs didn't last that long and
nowadays the common brokerage levels for CFD providers is around 0.1% or $10 minimum. So
which is better trading CFDs or trading stocks?
If you have a small amount of trading capital (from $1,000 to $10,000) then your choices for
stock trading can be somewhat limited. If you make a $2,000 stock trade with a traditional
broker, where your stock brokerage could be up to $65.90 for a complete trade, it will eat
significantly into your trading profits. Just to break even, your $2,000 position has to go up
3.30%. Now that may not seem a lot initially but what if you are doing a number of trades in a
month? Each position now has to gain 3.30% just to break even. Online brokers offer trades
much cheaper down to $10 per trade or even less.
If you have less than $10,000 starting capital the following example may be useful.
CFD account with zero leverage compared to a share trading account.
Capital
$10,000
Leverage Used
Zero
Trade Size
$2,000
Brokerage
$20
% to break even
1%
Daily Finance cost $0.51
Now consider two different share trading accounts charging brokerage of either $65.90 or
$39.90 round trip.
Capital
$10,000
Capital
$10,000
Leverage Used
Zero
Leverage Used
Zero
Trade Size
$2,000
Trade Size
$2,000
Brokerage
$65.90
Brokerage
$39.90
% to break even
3.30%
% to break even
2.00%
Daily Finance cost
$0
Daily Finance cost $0
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
In the example above you can see it costs approximately $0.51 per day to hold a $2,000
position overnight when trading CFDs. Therefore if you get charged $65.90 to get in and out
(round trip) then your break even point with your CFD trade is 90 days.
If you get charged $39.90 for a round trip then your break even point with your CFD trade is 39
days. So if you trade over a shorter time frame then the cost savings alone with CFD trading put
them way in front of stock trading. So before we even introduce leverage into the comparison,
most short term stock traders would be better off making the switch to CFD trading.
But far more importantly than low cost trading is the impact of CFD leverage, which is a major
benefit of CFD trading. The beauty of Contracts for Difference (CFDs) is that with $10,000 cash
in your account you could now access say 2-3 times that amount and take total positions
equivalent to $20,000 - $30,000 which you can't do with a share trading account. Trading at 2-3
times leverage on your account obviously gives you greater access to more opportunities
compared to a stock trading account which has no leverage.
On the other hand, with a CFD account you can only access a limited range of stocks, for
example on the Australian Stock Exchange, CFDs provide access to the top 500 share CFDs
compared with over 2,600 stocks. So if you like to trade the low cap or micro cap stocks then a
standard stock trading account might be the way to go.
CFD trading gives you access to dividends just like
you would trading stocks except for one small
difference. When trading CFDs you do not get any
franking credits on dividends earned. Franking
credits (sometimes called imputation credits) are
designed to prevent the double taxation of income
as the companies paying the dividend have already
paid tax on the earnings of the company, so you
don't have to. If dividends are a big part of your
investment decision making then stocks will win you
over here.
There is simply no comparison when it comes to short selling, as CFDs win hands down when
short selling. Unfortunately short selling can only be done with a full service broker when trading
stocks. This can be quite restrictive as your full service broker will have to find someone on the
other side of the trade in order to borrow the stock plus the trading costs can be quite high.
Conversely, short selling CFDs is incredibly simple. You have access to approximately 200+
share CFDs on the ASX with margins from 5-30% and there are less restrictions. Keep in mind
that CFD providers have to protect themselves in the physical market from time to time so they
do try to find the other side of the trade too. On occasions you may try to place a short sale on a
stock CFD only to find your CFD provider won't allow you. This would normally mean they can't
find the other side in order to hedge the position.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
With guaranteed stops there is once again a clear winner, because you cannot place a
guaranteed stop when trading stocks, however most CFD providers will allow you to place
a guaranteed stop when CFD trading. There are usually restrictions on doing this but at least
they are available.
Advantages of CFD trading versus Stock trading
9
9
9
9
9
9
Low trading costs
Overnight CFD financing is not a factor if holding positions for less than 40 – 90 days
Greater access to opportunities through leveraging your trading dollars
Access to dividends
Short selling is available on a range of stock CFDs
Guaranteed stops readily available from most CFD providers
Disadvantages of CFD trading versus Stock trading
9 Overnight CFD financing is a factor if holding positions for more than 40 – 90 days
9 Most CFD providers only give you access to the top listed stocks
9 No franking credits on dividends received
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
CFDs - Trade With Other People’s Money
While not completely no money down, CFDs offer a solution that is near to it. Because you do
not own the underlying share you are only required to provide a small margin as security in case
the trade moves against your position. Margin requirements are as low as 1%. This means that
you can buy $10,000 worth of an index for just $100 worth of security. You still benefit from the
gain in the whole $10,000 position even though you have only provided a small deposit to enter
the CFD position. Any gain or loss you make is credited or debited from your account each day.
Assuming you purchase 1,000 lots of a stock at $10 then you will have invested $10,000. If the
stock goes up to $12 then you have made a gain of $2,000 and if the stock falls to $8 then you
have lost $2,000. This holds true and is independent of how you bought the stock, you will still
make or lose $2,000 depending on whether you were right or you were wrong. But your return
on investment is determined by how you actually paid for the stock.
If you put up $10,000 in cash to buy the stock then you return is +/- $2,000/$10,000 = +/- 20%.
But if you were only to supply half the cash, $5,000 and borrow the other half then your return is
+/- $2,000/$5,000 = +/- 40%, ignoring the cost of interest for now. What if you could buy the
stock by placing a deposit of just 10% in cash. Now your return jumps to +/- $2,000/$1,000 =
+/- 200%. And with CFDs the margin requirement could be as low as 1% so now you gain a
return of up to +/- $2,000/$100 = +/- 2,000%.
Consider the table below that shows the gain or loss on a $10,000 investment in the stock that
was being traded, showing the leverage used and the Return on Investment (ROI).
Deposit
$ Return
ROI
$ Return
ROI
100%
$2000
20%
-$2000
-20%
50%
$2000
40%
-$2000
-40%
30%
$2000
67%
-$2000
-67%
20%
$2000
100%
-$2000
-100%
10%
$2000
200%
-$2000
-200%
5%
$2000
400%
-$2000
-400%
3%
$2000
667%
-$2000
-667%
1%
$2000
2000%
-$2000
-2000%
You can clearly see from the table the more leverage that is used, ie the less of your own
money and more of other people’s money, the greater the potential return on investment. It is
this attraction of leverage that draws many traders to Contracts for Difference in the first place.
To successfully trade CFDs it is necessary to learn to control the CFD leverage that you use
when trading. CFD leverage allows you to accelerate your trading results. It ensures that you
get where you are going faster, but make sure that your destination is to grow your account, not
destroy it. To do this it is necessary to manage your CFD leverage effectively.
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Page 11 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
7 Secrets You Should Know Before You Even Think Of CFD Trading
While the process of trading CFDs may seem shrouded in mystery it is actually quite simple.
Below is a list of the seven things you should know before you start trading CFDs.
9
9
9
9
9
9
9
How to open an account
Depositing and withdrawing funds
How safe is your money
Free brokerage, is that for real?
What is overnight financing?
Get paid to short sell
Bypass the uptick rule
First of all you will have to open an account with your preferred CFD broker. This involves
completing an application form. This form will ask you your personal details such as name,
address and contact details. In addition to this there is likely to be some questions about your
trading experience in the application form. A CFD broker is required to ensure that you have
sufficient knowledge and experience in the markets before you open an account. If this is the
first CFD account you have opened then you will have no experience trading CFDs. That is
perfectly acceptable as long as you have stock market experience. It is possible that you will be
unable to open an account if you have never participated in the stock market or traded before.
When you open an account your CFD broker will ask that you deposit an initial amount of
$1,000 - $5,000. There are no fees charged by your CFD broker to open an account but your
bank may charge an administration fee on transfers.
When you deposit that money it usually goes into a
segregated trust account that is separate from the
company's day-to-day running of their business. This
provides you added protection in the event that your CFD
provider may get into financial difficulties and means they
will not be able to access your trading funds to prop up
their business. This is not a requirement in all countries,
but it is in Australia. As a general rule your deposits with
your CFD brokers or providers are safe however it is
important to read the product disclosure statement (PDS)
of the company you are dealing with to determine where
your money will be held.
If you read the fine print in your product disclosure
statement (PDS) you may find there is one clause that
could cause you a little bit of difficulty. Even if your money
is held in a segregated trust account, it is held with
hundreds, if not thousands of other trader's money. If in
the unlikely event that one of the large traders should
happen to default on a margin call then the CFD provider
will top up that account through funds drawn on money
held on deposit.
Following on from this your CFD
provider will then usually have between one and five business days to make up the shortfall of
that client’s margin call which means your funds will be returned as normal.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
There have been extreme examples of providers getting into financial difficulty but it is usually
as a result of fraud within the management of that company. Refco Forex was one such
company where one of the owners embezzled several hundred million dollars which meant
most investors lost all their funds. This is a rare situation and if the CFD broker is acting
responsibly your funds are typically safe.
Back at the very start of opening your CFD trading account you would have been asked to
deposit funds when your account was initially approved. This process would have involved
depositing the funds via BPay, cheque or credit card. When funding via BPay your funds will
normally clear within 24 to 48 hours. If you fund via cheque then you can expect to wait 3 to 5
days for your cheque to clear and the funds to be processed into your CFD trading account. By
far the fastest of all three methods used to fund your Contracts for Difference account is via
credit card. Most CFD brokers will allow you to do it in this fashion and you can expect the funds
to be cleared within 1 to 2 hours and you can be ready to trade straight away.
Hopefully you will soon be the position to withdraw funds from your CFD account as a result of
your trading profits. Withdrawing funds is quite simple and the most common way to do this is to
link a nominated bank account to your CFD trading account and submit a withdrawal form. The
withdrawal form can be faxed and most CFD brokers allow you to perform this withdrawal online
once you have a nominated account set up. This can all be done in a matter of minutes.
When anyone starts trading financial products for the first time, the trading costs involved are
one of the most important criteria to consider. That is what makes trading index CFDs such a
great product as they are generally commission free. The reason CFD brokers allow you to
trade index CFDs commission free is the fact that they have a spread on the index that you are
trading.
The spread is the difference between the first buyer and the first seller. If we were to have a
look at the Aussie 200 index for example the spread may be two or three points. The first buyer
might be at 4000 and the first seller at 4002. As you can see there is a two point spread and so
if you traded at one dollar per point then buying at 4002 and selling at 4000 would result in a
two dollar loss. That two dollar loss is in effect your brokerage. There is no doubt that when
you first start out trading CFDs an index CFD at $1 per point is a brilliant option to consider.
However, you can begin to see if you traded 25 contracts at 2 point spread your effective
brokerage would be $50 to buy and $50 to sell making it a $100 round-trip.
You may or may not know that CFD brokers have significant amounts of money under
management and it would not be uncommon for a large CFD broker to have in excess of $100
million in client's funds in the bank. These clients' funds sitting in the bank represent an amazing
amount of passive income for the CFD broker and at this stage we haven't even talked about
CFD finance.
The other reason CFD brokers are able to provide an index CFD commission free is that they
charge an overnight financing rate which may be as high as the RBA rate plus or minus 4%.
This means if you are holding an index CFD trade for a year and the reference rate was 4.25%
you would be charged 4.25% + 4% which equals 8.25% per annum calculated back as a daily
rate. Always keep in mind that this financing rate is charged on your total position size which
means it can get quite expensive allowing the CFD broker to pocket that finance.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
CFD finance is a debit or credit to your account as a result of holding a CFD position overnight.
Overnight simply means you hold your position past 5 PM New York time. This is known as the
roll over time. In effect the CFD finance is a cost you incur for borrowing the leveraged money
that you are trading with in the market. As you would already know, one of the greatest benefits
of trading CFDs is the ability to put a small amount of margin upfront in order to control a much
larger position.
Another great advantage of trading CFDs is the fact that when you short sell you actually get
paid interest for every day you hold the position overnight. Normally the rate you would earn is
the overnight cash rate -2% calculated as a daily rate. As you can see that doesn't equate to a
massive amount of money but it is still a credit nonetheless. Consider the cost of incurring CFD
finance as the cost of accessing more opportunity than normally would be available if you were
trading the stock market.
The uptick rule means that if you are to implement a short sell position, which means you are
looking to profit as the market falls, then the stock has to move up at least one tick before you
can open a short position. For example, if the current price was $4.00 and the next price was
$3.99 then you would not be able to open a short position as the price has moved down. The
only way you could open a short position is if the price went from $4.00 to $4.01 which means
the price ticked up one cent allowing you to short.
Fortunately the uptick rule does not apply to CFD trading or Forex trading and you're able to
open a short sell position irrespective of how the price of the stock you are tracking moves. This
is great news because it is very common in fast moving markets for the price to tick down very
quickly and restrict those who are stuck with the uptick rule. Not only are Contracts for
Difference easy to understand but they allow you opportunities that are usually not open to
traditional stock market investing or trading.
Best CFD Trading Books
There is a varied selection of CFD Books available on the market today. Most of these books
have been written in Australia by Australian traders and the authors share their market
knowledge with the reader openly.
“Real Traders 2” by Eva Diaz
Real Traders 2 written by Eva Diaz has collated a selection of stories from a wide
range of traders using CFDs. The insights in this book from real traders will open
your eye’s to possibilities that exist in the trading world. Eva Diaz takes you behind
the scenes to see how it was possible for Dave Limburg to make over 441% in 9
weeks.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
“Supercharge Your Returns with CFDs” by Jeff Cartridge
I have to admit that I am biased here as I know the person who wrote this book,
but I do believe it is a well rounded look at CFDs, from the basic mechanics,
through risk management, to CFD strategies and the psychology behind
successful trading. This book has been translated into German for the European
market as well.
“Contracts for Difference” by Catherine Davey
This was the first book on CFDs to hit the book shelves and has sold well because
of this. The book explains the mechanics of CFDs and includes a large amount of
technical analysis information in it as well. Catherine Davey’s book also
prominently features the CFD Provider that sponsored the writing of the book.
“Making Money from CFD Trading” by Catherine Davey
Catherine’s second book profiles her journey taking a $13,000 CFD account and
turning it into $30,000. This is a great insight into what it takes psychologically and
emotionally to trade CFDs as Cat embarks on the journey to make money with
Contracts for Difference (CFDs).
“Trading ASX CFDs, Options and Warrants the ASX Way” by ASX
This book was published by the ASX and takes a look at the benefits of using ASX
CFDs and other derivative products to trade. A sound factual overview of the
trading products is available from an experienced education team.
“CFDs a Traders Guide to Contracts for Difference and Technical Analysis” by John Jeffery
John Jeffery has produced a detailed look at CFDs, the mechanics, strategies and
tools for success in the CFD market. He also takes a look at how CFDs compare
to other derivatives and the history of CFDs. This is a comprehensive book for the
beginner or more advanced trader.
www.learncfds.com
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
It is hard to label any of these the Best CFD book on the market as they all take a different
approach to the market. If you want to read about real traders going about their daily trades
then Catherine Davey’s second book or Eva Diaz’s books stand out. If you want the mechanics
of ASX CFDs and derivatives then the ASX book is the obvious choice. And if it is an overall
view of CFDs and their application to trading then consider the books by Jeff Cartridge or John
Jeffery.
You can purchase these CFD Trading Books at
http://learncfds.com/Contracts-for-difference-CFD-Trading-books.html
www.learncfds.com
Page 16 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
2. Can I Really Double My Money In A Month Trading CFDs?
As a general rule people are lured into trading Contracts for Difference or CFDs as a result of
the incredible annual returns some people make and the relative ease with which they do it. It
seems as if trading CFDs is the golden path to riches that everyone has been waiting for.
Unfortunately, there is not one single endeavour where the rewards are so high that the most
successful people do not get there without hard work, sacrifice and a dedication to being the
best. Despite the amazing returns that some people make trading CFDs you need to be totally
aware that your annual return when trading CFDs will most probably be a lot less.
Nearly every trader you will come across that trades contracts for difference will have made
money. The challenge with trading contracts for difference is not making money but instead
hanging on to those profits and not letting greed get the better of your trading account. One of
Australia's largest CFD brokers held two separate trading competitions over different time
frames and demonstrated the fact that making money with CFDs is not the hard part, but
instead overcoming greed in order to hang on to those profits is.
In one trading contest the leader had made over 2,400%
in five weeks of trading only to give back all of the profit (in
excess of $150,000) and start eating into their trading
capital. In another similar contest, run by one of Australia's
largest CFD brokers, the leader had amassed over
10,000% profit in a couple of weeks only to finish on just
over 4,000% profit after a short six weeks of trading. This
trader had originally given back some 6,000% in profits.
The mind boggles.
So with this in mind is it truly possible to make money
trading CFDs? This is the million dollar question that
many traders ask themselves before, during and after
getting involved in trading Contracts for Difference. The
answer is a resounding YES, but how you reach your
destination is up to you. By completing this guide you will
gain a clear direction to ensure your success when trading
CFDs. While there are a very elite group of people that
carve out a new pathway to success, there are far more
that get there by following a road less travelled. The road
may be less travelled, but the road is already there.
Congratulations on finding a proven path to follow to achieve trading success.
definitely in the right place.
www.learncfds.com
You are
Page 17 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
441% in 6 Weeks
CMC Markets ran a trading competition and gave away $100,000 first prize to the trader with
the highest return on investment over a nine week period. Now this section is about a typical
annual return when trading CFDs and the figures I'm about to quote from Eva Diaz's CFD Book
Titled “Real Traders 2” are certainly not typical. In fact these are the best traders in Australia.
After nine weeks the final leader board tally looked like this:
9
9
9
9
9
9
9
9
9
9
Dave Limburg - 441.79%
Nichole Page - 408.59%
Andrej Jancik - 399.73%
Michael Kwong - 387.84%
John Mittelheuser - 220.49%
Assad Tannous - 180.86%
Craig Page - 166.02%
Glen Bennetts - 165.53%
Lan Dang - 146.68%
Robert James Bell - 145.4%
As you can see, the final winner Dave Limburg managed to make 441.79% over a short 9 week
period, which means the annual return would effectively be through the roof. Please keep in
mind that the 10 people listed above are what we would refer to as extreme examples.
If you're just starting out that you will be well advised to trade very, very small and concentrate
on gaining confidence with your trading plan as your first port of call. There is an old saying in
the stock market that if you look after the down side, the upside will take care of itself. Nothing is
truer than when you are trading with a leveraged product like CFDs.
When you are starting out it is okay to be conservative and aim for a 10% underlying return and
then add leverage. Consider for a moment that if you traded at 2 to 3 times your account size
then that 10% return would equate to a 20 to 30% return cash or cash. For example, if you had
$10,000 cash and you traded at three times your account size then you would have total
positions of around $30,000. If you made a 10% return on $30,000 that would mean you've
made a $3,000 profit and your return on your initial cash of $10,000 would be 30%. Always
remember when trading with leveraged products both the wins and losses can be larger than
normal. As a rule you want to trade cautiously until you have a proven system that is profitable.
Day Traders Get Suckered In Again - Your Ideal Trading Time Frame
Traditional workers on a salary of $60,000 will sit at their desk for 8 full hours in order to churn
out a massive $230. The day trading dream is pretty simple. With a $25,000 position and a 1%
favorable move in the stock you are trading over say a 1 hour period results in a gain of $250.
Who needs work right?
The numbers of traders who get caught by the day trading dream due to believing in these
'easy' day trading profits are everywhere. You probably know several of them already. Instead
of jumping on the day trading bandwagon, establish clearly the most preferred trading
timeframe that will suit your trading personality. This may or may not be day trading.
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Page 18 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Ensuring you are trading over the right time frame is one of the most critical factors to your long
term trading success but by far the most overlooked. Many unprofitable day traders soon realise
that their personality type just doesn't suit short term day trading and once they find the ideal
timeframe to trade, their results pick up dramatically. Trading success comes from getting in
flow with the markets. Understanding your trading personality is the first step towards achieving
this goal.
So many traders are simply out of sync with the market due to trading against their natural
trading personality and as a result profitable trading is just a pipe dream. One of the best
strategies to become aligned and in flow with the markets is to build a trading plan that suits
your personality. Knowing your personality profiles should be mandatory for all traders and this
is your first starting point to build on to create a robust trading plan.
Did You Truly Come Here To Make Money Trading CFDs?
Someone, with a lot of time on their hands, calculated there are 8 billion trading possibilities in
the bond market alone. With CFDs you can trade bonds, global stocks, indices, currencies,
commodities. Almost any underlying instrument can be traded with CFDs on any market in the
world and there is usually a market trading at any time of the day or night 6 days a week. It is
obviously physically impossible for any human to trade all these markets.
A very important element to get started with is to determine your ideal timeframe. This simply
means you must know what period of time you are looking to capture your profits over. In
addition to this it includes knowing the available hours that you have to trade. It is not practical
for you to day trade stocks if you work full time. I am sure the boss would have something to
say about you logging in to check your shares every few minutes.
But position trading, holding CFDs for a few days or weeks, is possible on any market even if
you work full time. The use of stop loss orders can allow you to enter and exit at predefined
points when the share reaches these levels. You are not required to be in front of your
computer all day every day. Your analysis can be completed at the end of each trading day and
orders placed for the next trading day.
For Australian traders working full time the London FTSE or German DAX index may work well
if you wish to day trade as both trade during the evening. European traders could choose to
trade the US markets after work.
You may prefer to trade local shares because these are well known and information is readily
available on the companies. You may have a preference for trading gold or silver and be aware
that most of the movement occurs in these markets during the US trading hours. Markets tend
to more active near the opening and closing times so day traders may want to block out your
calendar around these times. Currencies trade 24 hours a day and a strategy can be
developed to suit your available time. But it is important to decide. Decide what you will trade
and when you will trade it.
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Page 19 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Other considerations to take into account when selecting a market to trade is your access to
information. China is certainly a growing economy, but information on Chinese companies is
not easy to access and even more difficult if you do not read Mandarin or Cantonese. For
practical purposes CFD traders will pick shares in their own country to trade as information is
readily available to them and the companies are familiar.
Outside the realm of stocks it is possible to trade on Indices, Bonds, Commodities and
Currencies. All of these have some advantages over trading shares with CFDs. First there is
no brokerage charge when trading CFDs on these instruments. That does not mean there is no
cost as finance charges still apply and the spread that the CFD Provider charges on a
transaction is also a cost of trading.
Also these instruments trade 24 hours a day or near to it making risk management easier as
gaps are less likely to occur. With the markets open almost 24 hours per day there is sure to be
a time to place orders that suits you. These other markets are also likely to outperform, or
underperform, at different times to the stock markets as well allowing you to diversify your risk.
When it comes time to develop a strategy there are two different ways that you can approach
trading the markets and developing a trading strategy.
The first is to determine a particular setup that provides a high probability of profitable trades
and then search the markets to find a share or market that has these setup characteristics. For
example a close outside a Bollinger Band can indicate an oversold or overbought condition and
can indicate a likely reversal in the price movement.
The second approach focuses much more narrowly on just one share, index or commodity and
then uses a variety of different indicators to determine the likely direction of the trade. Trades
are always executed on the same underlying instrument when a clear direction is indicated by
the signals that are being used. For example a trader may trade the S&P500 and look at
MACD, RSI, volume, the rate of change and seasonal patterns. When these are all lined up the
trader takes a trade in the direction outlined by their indicators.
One of the best ways to work out which market and time frame you wish to trade is to trial as
many different trading systems as you can. This does not have to be done with real money,
instead you can “paper trade” the strategies either using a demo account or simply recording
your trades. The reason for this is that we all have different psychological profiles and largely
we are all better suited to one style of trading over another. As a result what you may want to do
is trial several different trading systems or even dozens of different trading systems and find the
one that sticks.
This strategy would be no different to a professional golfer, like Tiger Woods, trialing several
different types of drivers in order to find the one that suits his game perfectly. As they say the
definition of insanity is doing the same thing over and over again and expecting a different
result. Unfortunately, most new traders either learn from a friend or pay thousands of dollars to
learn that one specific style of trading only to discover that that style of trading does not fit their
psychological profile or even their ideal timeframe.
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Page 20 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
So as you can see finding the ideal CFD trading system comes down to identifying your ideal
timeframe and trialing dozens of different approaches to profit from the markets. Once you find
a market, timeframe and style of trading that you are comfortable with, you can then move on to
developing a comprehensive trading plan.
Remember that you cannot trade all the
opportunities that present themselves, so it is necessary to decide what you will trade.
One of the most common sayings in the stock market is traders always get out of the market
what they came for. As a result it is absolutely vital that you define your objectives clearly and
set steady achievable goals in order to maximise your opportunities when trading Contracts for
Difference. Those traders who make money trading CFDs have clearly defined goals, a wellestablished trading plan, trade within their limits and are able to remove their ego from their
decision-making ability.
There is no better feeling than setting
some aggressive CFD trading goals and
meeting and or surpassing them during
the year. Nearly all traders I meet are
positive, goal orientated individuals and
so this section is not about how to set
and achieve goals but instead it is to
outline some of the more common CFD
trading goals that can help you find the
path to success.
Many traders set goals to achieve a set
annual return, I want to make 50% on
my money this year, but in reality the
amount you make is not necessarily a
goal that you can achieve. You have no
control over the markets you are trading this year and they may deliver 10% if you follow your
strategy or 80%. This is for the market to decide, not you. So when setting trading goals
ensure these goals are set for things you can control, not those you cannot.
Whilst your trading goals may differ from those listed below you will find a lot of common
elements with your goals or if you struggle to set your own goals the list below will form a good
benchmark for you to strive towards.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Always remember it is not the destination that leaves you feeling satisfied but instead the
journey and the person you become whilst you to strive towards and achieve your goals. Always
remember to keep it fun.
I will keep a trading journal to record every trade and track my thoughts on each trade
I will apply strict money management rules
I will learn to pyramid into successful trades and maximize my wins
I will only trade when my conditions for entry are met and not trade just for the sake of it
I will build at least one profitable trading system
I will establish a daily routine that leads to success in the markets
I will seek a trading coach who can move me up the ladder of trading success
I will read at least 1 trading biography or trading book a month to enhance my skills and
keep me fresh
9 I will be disciplined when my exit conditions are hit and minimize losses according to my
trading plan
9 I will learn to pull the trigger straight away as every tick counts
9
9
9
9
9
9
9
9
Goals should ideally be process oriented, not outcome oriented. By setting goals related to
things you can control you have far more chance of achieving your targeted returns.
To learn more about getting started with CFDs check out our free CFD trading tutorial here
http://learncfds.com/CFD-Tutorial-Introduction.html
www.learncfds.com
Page 22 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
3. I Lost Money Hand Over Fist Until I Discovered This 1 CFD Trick
There is one simple trick to turn your trading around and prevent massive losses in your
account. Manage your risk. Risk management is the key to your success, controlling what
happens if the trade goes wrong. It is the control of losing trades that allow the winning trades
to grow your account. Without this control just one bad trade can wipe out your whole account.
Poor risk management is certain death for a trader. Just as a scuba diver must protect their air
supply, a trader must protect their capital, it is equally important to long term survival. When
trading any financial product or accessing any investment opportunity your goal should be to
avoid large losses as your number one priority. Warren Buffet was famously quoted as saying:
9 Rule number one when investing - Never lose money
9 Rule number two when investing - Refer to rule number one
One of the greatest advantages of trading Contracts for Difference is the fact that you gain
access to a huge amount of leverage if your risk tolerance allows. Unfortunately this leverage
acts as a double edged sword and on the occasions that you are wrong. Your CFD losses will
be magnified and this can result in very large losses. Irrespective of whether you are a brandnew to CFD trading or an experienced CFD trader your goal should always be to preserve
capital and avoid large losses like the plague.
There are two things required to effectively manage your risk,
one is to always use stops and two is to control your position
size. Stops will prevent you from losing a large amount of
capital on any one trade, provided they have been placed into
the market. As a new trader stops become an essential part of
your trading strategy. These are not negotiable, because the
leverage employed when trading CFDs does not allow you to
hold onto a position and wait for it to come back. You may be
able to get away with this trading stock, but not with CFDs.
Placing a stop loss order controls your loss on a particular contract, but the second key is to
control the number of CFD contracts that you trade. The more CFD contracts that you trade the
more risk that you are taking on every time you enter the market. Controlling your position size
will allow you to control your risk.
The Thrill of Chasing Large Wins
If you have been around investments for any length of time you will appreciate the fact that in
order to gain a large reward you must be prepared to risk a reasonable amount of money. When
we talk about risk versus reward it is important to understand that for any investment risk you
take on a reward of 2 to 3 times that initial risk is excellent. This means that on a global portfolio
basis if you had $50,000 to invest and you were willing to risk $10,000 of that $50,000 then an
acceptable reward for that year would be between $20,000 - $30,000.
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Page 23 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
But with CFDs it is very tempting to enter a large position just because you can. If you are
trading indices or currencies you can leverage up to 100:1, which means that in an account of
$10,000 you could trade $1,000,000 worth of the underlying security. This means if you are
correct and pick up a gain of 10% on the underlying security you have just made a return of
1,000% in your account. In dollar terms a 10% move in the underlying index would mean a
profit or loss of $100,000. This is very tempting on the upside, but could be a disaster on the
downside. A 1% drop or move against the position will completely wipe out your account.
So controlling leverage is really about controlling the greed factor and not expecting to go after
massive wins every time. Successful trading comes about from making a series of trades and
surviving the times when your strategy is not working effectively. The big wins do come about,
but not if you have wiped out your account in the meantime.
The Foundation of Successful Trading
As mentioned previously the foundation of successful trading is sound risk management, so
how do we manage our risk when trading CFDs. Consider the following trading strategy.
If you enter a CFD position at random and exit from that position after 7 days, the following
distribution of trades is likely to occur. Very few trades will have made a large gain and very few
trades will have made a large loss, with most of the trades resulting in small gains or losses.
Distribution of Trades
30
Frequency
25
20
15
10
5
0
-8
-4
-2
-1
1
2
4
8
Profit/Loss
The strategy is unlikely to be profitable, though the curve will be skewed to the upside in a
bullish market environment and the downside in a bearish environment. But there is an easy
way to make this strategy profitable and that is to use a stop loss exit strategy.
Distribution of Trades
30
Frequency
25
20
15
10
5
0
-8
-4
-2
-1
1
2
4
8
Profit/Loss
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Page 24 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
If you can cut off the losses and let the profits run then you are adding to your profitability. This
chart illustrates this strategy with the large losing outcomes removed. Now the small losses
cancel out the small gains and you get to keep the larger profits. This is the reality of trading.
Be prepared for the fact that 70% - 90% of your trades will not make you any money. They will
simply cancel each other out, but when the big winners do come along these trades make the
strategy profitable overall. One great trade can turn around a losing month, but it is of no use to
you if you miss that trade.
Shown here in the table are a series of 20 trades from the Patterns of Success newsletter for
the Australian Stock Exchange. Losses are strictly controlled by using a stop loss set at 3%
below the entry. From the 20 trades 16 of them produced a loss or a gain of less than 10%.
But the other 4 trades are the ones that matter and they went on to make up to 35% in 23 days.
Name
Code Direction Entry
Exit
Gain/Loss Return
Days
SINO GOLD MN LTD
EMECO HOLDINGS
SPOTLESS GRP LT
PERPETUAL LMTD
AQUARIUS PLTNM
MOUNT GIBSON IRN
IBA HEALTH G LT
OCEANAGOLD CORP
NAVITAS LIMITED
GLOUCESTER COAL
AUSTAR UNITED
SIGMA PHRMCTCL
TOWER AUSTRALIA
DUET STAPLED
FLIGHT CENTRE
IOF STAPLED
HARVEY NORMAN
ADELAIDE BRGHTN
MAC COMM STAPLED
CABCHARGE ASTRL
SGX
EHL
SPT
PPT
AQP
MGX
IBA
OGC
NVT
GCL
AUN
SIP
TAL
DUE
FLT
IOF
HVN
ABC
MCG
CAB
$5.250
$0.47
$2.14
$27.29
$4.60
$0.63
$0.64
$0.76
$2.23
$4.77
$0.73
$0.92
$1.96
$1.42
$6.15
$0.29
$1.98
$1.62
$0.83
$5.78
-$0.20
$0.07
-$0.07
-$0.84
$0.36
$0.12
$0.01
$0.01
-$0.04
-$0.10
-$0.02
-$0.03
-$0.10
-$0.10
$2.20
$0.04
-$0.06
-$0.08
-$0.02
$0.34
13
13
1
5
6
5
7
2
1
6
6
1
3
6
23
21
8
9
1
19
Long
Long
Long
Long
Long
Long
Short
Long
Long
Long
Short
Short
Short
Short
Short
Short
Short
Long
Short
Short
$5.45
$0.40
$2.21
$28.13
$4.24
$0.51
$0.63
$0.75
$2.27
$4.87
$0.75
$0.95
$2.06
$1.52
$3.95
$0.25
$2.04
$1.70
$0.85
$5.44
-3.67%
16.25%
-3.30%
-3.00%
8.46%
23.51%
2.03%
0.66%
-1.90%
-2.06%
-2.59%
-3.26%
-5.10%
-7.04%
35.81%
12.59%
-3.13%
-4.77%
-2.65%
5.81%
Overall this strategy was profitable during this time. It would be great to know in advance which
of the trades was going to be the winning trades, unfortunately it is not that easy. This is what
has been done already when designing the strategy picking out the best trades before entering
them in the first place, but this is no guarantee every one will be a great trade. It becomes
important to trade each and every trade, set a stop loss for those that do not work out and still
be there when the winners finally arrive.
www.learncfds.com
Page 25 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Why It’s Easy For Investors To Manage Risk
An investor is in the fortunate position that risk management works automatically for them. The
maximum amount an investor can lose is 100% of the capital in an investment if the company
the investor bought was to fail. On the other hand the upside potential for a stock that is held
for 5 – 10 years could be many thousands of percent. Assume that it is 2,000% - 3,000% that is
possible on the upside and the maximum downside is 100%, if only one share out of 10
delivered a profit the investor is still well ahead.
By buying a portfolio of investment stocks and holding them for long enough you are likely to
pick up one or two that do perform very well. And if you do your homework hopefully none of
the stocks go to zero. This approach has worked very well for many investors as without
realising it they are managing their risk.
A trader on the other hand does not often have the luxury of receiving 2,000 – 3,000% profit on
a trade. Because the trader is holding positions for a shorter length of time profits may be in the
region of 20 – 30%. If losses continue to accrue at the rate of 100% when the trade does not
work out then the strategy is very unlikely to be profitable. If the trader can institute their own
risk management strategy and cut their losses at 10% while maintaining the up side of 20 -30 %
then once again it is likely that the trader has developed a profitable trading strategy. It is
controlling the downside that allows a trader to develop a profitable trading strategy. To do this
effectively it would be very prudent, in fact essential, to build CFD stop losses into your CFD
trading plan.
How to Maximise Your Returns and Minimise Your Risk
Stop losses are an essential part of trading CFDs successfully. Even when a stop is placed at a
predetermined distance from the entry price the amount that you can lose is determined by the
number of contracts that you own. The more contracts you hold the more you will lose in dollar
terms. 10 contracts and a 50 cent risk will result in a loss of just $5, 100 contracts and the loss
is $50, 1000 contracts and the loss is $500, $10,000 contracts and the loss is $5,000 and so on.
Controlling your position size is an essential part of controlling your risk. In order to avoid large
losses when trading CFDs it is absolutely critical that you learn the patience and discipline to
trade small and never risk more than 1 to 2% of your overall capital on any one trade.
Calculate the potential loss on a single contract by subtracting the entry price from the stop
price. Ignore any negative sign that may occur. Decide how much you are prepared to risk on
a trade in dollar terms. Typically this should be 1 – 2% of your total trading capital. Remember
any strategy will have winning streaks and losing streaks and you must have sufficient capital to
survive during the losing times.
Now divide the total risk per trade by the loss on a single contract to determine how many
contracts you can trade. Round the number to the nearest whole number, eg 15,837 would
become 15,000 and you have your position size. This is a simple method that works very
effectively.
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Page 26 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Entering the Australian S&P ASX 200 at 3730 and setting a stop at 3700 means the trader will
lose 30 points or $30 per CFD contract if the trade does not work out. If the trader is prepared
to risk $200 on the trade then the appropriate position size is 200/30 = $6.67 contracts or in
round number terms 6 contracts to keep the risk within $200.
!!!AU S&P/ASX 200 (3,890.40, 3,907.80, 3,851.90, 3,867.10, -23.2998)
4000
3950
3900
3850
3800
3750
3700
3650
3600
3550
3500
3450
3400
3350
3300
3250
3200
3150
3100
3050
3000
20000
15000
10000
5000
x100000
2
March
9
16
23
30
6
April
14
20
27
4
May
11
18
One of the big differences between trading futures and CFDs is the ability to control your
position size in much smaller increments. A crude oil futures contract is 1000 barrels of crude oil
and fluctuates $10 for every cent movement in the underlying price. A move in the price of oil
from $34 - $35 will result in a gain or a loss of $1,000 with a futures contract. With a CFD the
contract fluctuates $1 for every cent movement in the underlying price so the same move from
$34 - $35 will result in a gain or loss of $100. With CFDs you can control your position size in
much smaller increments than when trading futures.
When determining how much to risk on a trade, be aware of your risk relative to your account
balance. If you choose a set risk of $200 per trade this is only 1% of a $20,000 account, 2% of
a $10,000 account, 4% of a $5,000 account and 10% of a $2,000 account. Take a look at the
table below as to how losses impact on your account balance at different levels of risk. The
table shows the risk as a percentage of your account balance across the top and the number of
consecutive losing trades down the left hand side. The squares highlighted in red show the
number of trades that it takes to cut the account balance in half.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
$20,000 1%
2%
3%
4%
5%
10%
15%
20%
25%
30%
1
$19,800 $19,600 $19,400 $19,200$19,000$18,000$17,000$16,000 $15,000 $14,000
2
$19,602 $19,208 $18,818 $18,432$18,050$16,200$14,450$12,800 $11,250 $9,800
3
$19,406 $18,824 $18,253 $17,695$17,148$14,580$12,283$10,240 $8,438 $6,860
4
$19,212 $18,447 $17,706 $16,987$16,290$13,122$10,440$8,192 $6,328 $4,802
5
$19,020 $18,078 $17,175 $16,307$15,476$11,810$8,874 $6,554 $4,746 $3,361
6
$18,830 $17,717 $16,659 $15,655$14,702$10,629$7,543 $5,243 $3,560 $2,353
7
$18,641 $17,363 $16,160 $15,029$13,967$9,566 $6,412 $4,194 $2,670 $1,647
8
$18,455 $17,015 $15,675 $14,428$13,268$8,609 $5,450 $3,355 $2,002 $1,153
9
$18,270 $16,675 $15,205 $13,851$12,605$7,748 $4,632 $2,684 $1,502 $807
10
$18,088 $16,341 $14,748 $13,297$11,975$6,974 $3,937 $2,147 $1,126 $565
11
$17,907 $16,015 $14,306 $12,765$11,376$6,276 $3,347 $1,718 $845
$395
12
$17,728 $15,694 $13,877 $12,254$10,807$5,649 $2,845 $1,374 $634
$277
13
$17,550 $15,380 $13,461 $11,764$10,267$5,084 $2,418 $1,100 $475
$194
14
$17,375 $15,073 $13,057 $11,293$9,753 $4,575 $2,055 $880
$356
$136
15
$17,201 $14,771 $12,665 $10,842$9,266 $4,118 $1,747 $704
$267
$95
16
$17,029 $14,476 $12,285 $10,408$8,803 $3,706 $1,485 $563
$200
$66
17
$16,859 $14,186 $11,917 $9,992 $8,362 $3,335 $1,262 $450
$150
$47
18
$16,690 $13,903 $11,559 $9,592 $7,944 $3,002 $1,073 $360
$113
$33
19
$16,523 $13,625 $11,212 $9,208 $7,547 $2,702 $912
$288
$85
$23
20
$16,358 $13,352 $10,876 $8,840 $7,170 $2,432 $775
$231
$63
$16
21
$16,195 $13,085 $10,550 $8,486 $6,811 $2,188 $659
$184
$48
$11
22
$16,033 $12,823 $10,233 $8,147 $6,471 $1,970 $560
$148
$36
$8
23
$15,872 $12,567 $9,926 $7,821 $6,147 $1,773 $476
$118
$27
$5
24
$15,714 $12,316 $9,628 $7,508 $5,840 $1,595 $405
$94
$20
$4
25
$15,556 $12,069 $9,339 $7,208 $5,548 $1,436 $344
$76
$15
$3
26
$15,401 $11,828 $9,059 $6,920 $5,270 $1,292 $292
$60
$11
$2
27
$15,247 $11,591 $8,788 $6,643 $5,007 $1,163 $249
$48
$8
$1
With risk set at 30% of the account balance just 2 trades cut the account in half, with risk at 15%
it still only takes 5 trades to cut the balance in half. With risk at 5%, 14 consecutive losing
trades are required and as risk drops to 3% the trader can survive 23 consecutive losses and
still have half the money in their trading account. With risk set at 2% or less the number of
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
trades expands to beyond 30 consecutive losing trades.
This is why it is widely recommended that traders risk no more than 2% of their capital on any
trade. The drawdown, which is the drop in your account balance, is less severe when running a
lower risk. Most traders in CFDs take on far too much risk based on their account balance and
as a consequence a series of losing trades can wipe out their account. This is not necessary if
you calculate the appropriate position size for each trade.
Discover How to Triple Your Profits With Less Effort
Every one would like to get more for less and with CFDs this is possible using one of two
different techniques to enter your trades, either pyramiding or scaling into a position.
Scaling is risking a certain percentage such as $600, then dividing that into three smaller
positions and entering them at different price levels as your confidence in the trade grows. This
way you start out by risking just 1/3 of your normal position size and test the water to see if you
are right in your market assessment. Adding a second and a third parcel to the trade occurs as
the information that you receive confirms your view. Scaling allows you to reduce your risk
when entering a trade, because if the trade goes wrong you will be stopped out for 1/3 of the
loss. Usually, when scaling into a trade, the initial stop will remain in the same place and the
scaling will happen fairly soon after the initial entry.
Scaling can also be used to exit from a trade, exiting half the position at the first exit signal and
then holding a second position to see if the trade will run further and then exiting the remainder
at the second exit signal.
Pyramiding differs from scaling as it is increasing your position size after the trade moves in
your favour. Pyramiding starts out by placing at risk $600 on the first trade, then a further $600
on the second and third trades. This can be used to triple your profits and by waiting for the
trade to move sufficiently in your favour you can still manage the risk effectively with pyramiding.
Pyramiding allows you to increase your returns when you are right and you pick up a large
winning trade.
!!US S&P 500 (906.100, 907.700, 897.340, 903.800, -3.44000)
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
770
760
750
740
730
720
710
700
690
680
670
660
650
1.5
1.0
0.5
0.0
-0.5
-1.0
2
March
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9
16
23
30
6
April
13
20
27
4
May
11
18
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
On the S&P 500 the first trade is entered at 720. If a stop is placed 15 points below entry then
the risk is 15 points. As the trade moves up to 735 for a gain of 15 points a second position is
added. The stop is also moved up to the original entry at this time. The risk is still 15 points as
the first position will lose zero and the second position will lose the 15 points. And a third
pyramid could occur in the same way as the S&P500 reaches 750. The trade can then be
exited as per your normal exit criteria and in this case you could have been out at 792. The
trade would have delivered profits of 72+57+42 = 171 points. By pyramiding into the trade you
are able to trade three times the position size without adding to the risk. Pyramiding works best
with trend following type strategies as these normally present a better risk reward and it is
necessary for the trade to move some distance to make the most of the pyramiding.
You have spent a certain amount of time and effort to locate a good trade and now that you
have found one you can increase your returns by adding to the position. Scaling allows you to
reduce your risk if the trade goes wrong, while pyramiding allows you to make the most of the
big winning trades.
Find out how to protect your money here
http://learncfds.com/Investing-money-to-make-money-9-rules-to-keep-you-safe.html
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Page 30 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
4. Two Numbers That Will Guarantee Your Success
There are two important measures of trading performance other then the obvious one of
percentage return. Overall percentage return matters, but to get an insight into why the strategy
works, or doesn’t and how the profits are likely to be delivered it is important to consider these
two ratios. Understanding the relationship between two important ratios is the key to building,
assessing or executing winning CFD trading strategies. The two key ratios are the hit rate, how
often the strategy is right and the risk reward, what it achieves when it is right. Combining these
two together will determine the profitability of the strategy.
The hit rate is how often you are right. It is calculated by dividing the number of wins by the
number of trades and is also referred to as win%. It shows how often your entry strategy
delivers a winning trade. If your hit rate is very low, then you may want to focus on improving
your entry strategy. The hit rate cannot be considered in isolation because the risk reward is
also important. A low hit rate can be profitable if coupled with a high risk reward, but a low hit
rate makes the strategy much more difficult to trade because the trader is likely to make losing
trades before getting a winning trade.
The risk reward is calculated by dividing the average win by the average loss. This shows how
much you make when you are right in relation to how much you lose when you are wrong. The
risk reward ratio will help you determine how profitable your exit strategy is. When coupled with
the hit rate, it will allow you to determine the profitability of your trading strategy.
Based on the past performance and a combination of the hit rate and the risk reward the
expectancy of the strategy can be calculated. The expectancy is the expected profitability of the
strategy. If the strategy has a 50% hit rate and risk reward of 2:1 then we would expect to
make from 10 trades (5x2 plus 5x-1) a total of $5 or 50 cents per trade. Note this is really the
average profit on every trade. Some will win, some will lose, but on average we will make a
positive return on every trade with this strategy. The strategy is said to have a positive
expectancy.
Most people have bought lotto tickets at
some point in their life, however is lotto the
way to riches. The risk is very low, let’s
say $10 for a ticket, while the reward is
potentially huge, with first prize being
many millions of dollars, say $10 million for
this example. The risk reward ratio of this
investment is exceptional at 1 million to 1.
There are very few investments that
deliver this kind of risk reward. But there
is a problem with buying Lotto tickets as
an investment strategy. It is not the risk
reward, but the hit rate. If a winning Lotto
ticket requires 6 correct balls out of 40 possibilities, then the odds of winning are 3,838,380 to 1.
If we were to play Lotto 3,838,380 times then we would expect to win once and lose 3,838,379
times. This means we would win $10 million once and lose $38,383,790. Overall, buying Lotto
tickets is not a profitable investment strategy. Luck will favour some people in Lotto, but
successful investing is not about luck, it is about exploiting profitable opportunities.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
In the Super 14 rugby series, (Super 12 until 2006) the Crusaders has been a dominant team
over the last ten years winning 7 of the 10 series. In 2008 a gambler placed a $100,000 bet on
the Crusaders to win a game at odds of just 1.08. This means that if the Crusaders won the
gambler would have received a payout of $108,000, making a profit of just $8,000, but if they
lost the gambler would lose $100,000. This is a lousy edge ratio with the risk reward ratio of 8
to 100 and a potential big loss for a very small gain. But the probability of the Crusaders
winning the game is very high. Based on the entire history the Crusaders have a 72%
probability of winning any particular game, so the gamblers hit rate was 72%.
Year
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Played
11
11
11
11
11
11
11
11
13
13
13
127
Win
8
7
8
4
11
8
7
9
11
8
11
92
Draw
0
1
0
0
0
0
0
0
1
0
0
2
Loss
3
3
3
7
0
3
4
2
1
5
2
33
Place
1st
1st
1st
10th
1st
2nd
2nd
1st
1st
3rd
1st
If the hit rate is 72% and the edge ratio is 8 to 100 this means that approx 7 times the gambler
will win $8,000 and 3 times they will lose $100,000, so the strategy will not be profitable overall,
losing $244,000 from ten games.
The odds of winning in the current year may be higher than the
historical 72%. If the odds were 95% then the gambler would lose
only once out of 20 games so he would make $8,000 times 19,
$152,000, and lose $100,000 once. As an investment even
though the risk reward is lousy, this could be a profitable strategy
as it has a positive expectancy if the hit rate is high enough to
justify the investment. For the record the Crusaders lost the
game, even though they went on to win the competition.
It is the combination of the two key numbers the hit rate and risk
reward that will determine your overall profitability. Ensure you
know and understand how and why your strategy makes money.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Ex-Trader Reveals His Secret for CFD Trading Success
One of the greatest resources available to any serious CFD trader is a CFD trading diary. A
CFD trading diary will form one of the greatest learning experiences and provide the most
valuable feedback compared to any other method or technique you might be considering.
There is a common saying among business consultants which says “you can't improve that
which you cannot measure” and the same applies to trading. Your CFD trading diary will be the
first step towards gaining control of the most critical numbers in your trading business and will
track your thoughts and psychological processes that go in to making your buying and selling
decisions. Some of the basic numbers to keep track of in your CFD trading diary are the
potential risk reward ratio, average win to average loss and the percentage of wins to losses.
Have you ever looked back over your recent trades and found
one where you had no idea why you took the trade? For those of
you who have been trading for some time or currently trade
actively then this is very common. The power of a CFD trading
diary enables you to record your thoughts and reasons behind
entering and exiting a trade. The only way to grow as a trader is
to understand the reasons behind your trades and identify any
common problem areas that can be fixed.
When filling out your CFD trading diary be sure to include a chart
or record of the entry set up that got you into the trade, how you
are feeling at the time of the trade and the complete trading plan
including exit and risk management strategies.
Once you have documented 15 to 20 trades you will start to see various patterns emerging from
your trading style. These patterns will cover your strengths and weaknesses and provide
valuable insight into ways that you can improve your strengths and minimise your weaknesses.
Although keeping a CFD trading diary seems like a lot of work, once you get into the routine you
will find the habit becomes very easy and enables you to fast track your learning to ensure your
long term success and survivability when trading Contracts for Difference.
Key information to record includes:
9 Entry price
9 Exit price
9 Slippage (if any)
9 Number of contracts traded
9 Your thoughts and feelings when you start the day
9 Thoughts and feelings when you enter the trade
9 Thoughts and feelings when you exit the trade
9 Thoughts and feelings at the end of the day
9 And a rating system that rates how well the trade was executed
A trading diary is of value to every trader, but especially to traders that trade on a discretionary
basis. It is much easier to follow a preset strategy than it is to make it up as you go along.
Ideally you know that your strategy gives you an edge and now all you have to do is execute
that strategy exactly as planned.
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Profitable CFD traders will be able to tell you their average win, average loss, percentage win,
percentage loss and the expectancy and maximum drawdown of their trading system. As you
can see making money trading CFDs is a result of good common business sense including
building a trading plan, trading within your means, removing your ego and knowing all the
numbers of your trading business.
How to Dramatically Improve Your CFD Trading Results
Dramatic improvement comes about typically because of a series of small steps that all add to
the results. It is unlikely that you will find the ultimate indicator that turns around your trading in
one go. It is all about gaining a slight improvement here and a slight improvement there until
your strategy becomes more robust and delivers great results. For example a 5% increase in
your hit rate is not a huge change in itself, but can have a significant impact on your overall
results.
The reason for knowing your key numbers is they help you to refine and improve your overall
strategy. A low hit rate quickly identifies that the area to work on is the entry signals and the
setup criteria that must be in place before taking the trade. Improvement in this area will make
a dramatic difference to your trading.
Adding further confirmation to your entry criteria can improve your results. Maybe fundamental
factors have to be in place, seasonal factors or other technical criteria. Filtering the trades by
studying those that produce the best results and looking for similarities between them can assist
you to further enhance your trading strategy. But beware of over tightening your filters. As an
example I optimised a series of parameters around patterns trades for pattern length, height
and breakout position to get excellent historical results, only to find that the real time results
were very poor. This is known as over optimisation or curve fitting and I found it better to just
cut off extremes rather than focus in on a narrow range.
If your risk reward is very low the exit strategies are more likely to need some work, allowing
profits to run further and cutting losses quicker. A low risk reward could also be the result of not
having the correct setup criteria in place as the exit strategy you are using may be maximising
the gains that are available, the gains are just small. But start by checking your exit signals first.
It is not necessary to run just one exit technique. Many traders will use a variety of indicators to
make the entry decision, but sell everything on a stop loss. Trends end in a variety of ways and
utilising a range of different exits can assist you to capture profits. A trend can roll over in the
classic way by forming a head and shoulders reversal and then begin a new trend in the
opposite direction. Alternatively a rapid move in a share price can form a V shaped reversal. A
trend that accelerates very strongly can create a gap and if that gap closes then it can mark a
reversal in the trend. And finally a trend can move into consolidation before reversing. All of
these trend reversals have different characteristics and require different exit techniques. A one
size fits all is not necessarily the best approach to use to exit trades.
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My Results with This Controversial System
The recognition of chart patterns is a subjective visual skill which has proved to be difficult to
automate via computer technology. The source of the difficulty has been the translation of the
visual cues used by chartists into precise mathematical descriptions which are useable by
computer software. Patterns Trader has been able to capture visual cues and translate them
into the precise mathematical descriptions required.
The various bars (or candlesticks) on a price chart form visual peaks and troughs called turning
points which are themselves subjective although there are a number of documented techniques
used to determine them. The two boundary lines of a pattern connect the peaks or the troughs
to make distinctive geometric shapes. These shapes are called chart patterns and common
patterns include ascending triangles, symmetrical triangles, rectangles and wedges. The chart
patterns can be broadly classified into three groups, triangles, broadening patterns and parallel
patterns.
To develop the Patterns of Success newsletter we started with the following data. This shows
31,065 long trades returning an average of 0.88% (the gain is shown in basis points) in 9 days.
The strategy was right 44.9% of the time. The short side had a similar number of trades, but
produced a much smaller gain of just 0.22% in 8 days and was right 39.8% of the time.
Trade Type
Long
Short
Data
Gain
Trades
Days
HitRate
Gain
Trades
Days
HitRate
Total
88
31065
9.1
44.9%
22
31188
8.4
39.8%
Developing the strategy for the long side the first thing we applied was a turnover filter. This
made the results worse, but meant the shares selected could easily be traded and it eliminated
20,000 trades that would be considered illiquid.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Total Gain
Total Trades
Total Days
Total HitRate
76
10342
9.1
44.5%
Then an environment filter was applied. For a long trade the market must be in a consolidation
or an up trend and the sector must also be in an up trend. This filter improves the results
dramatically with a boost in the average gain to 1.23% per trade in 9.7 days and an
improvement in the hit rate to 48.4%. We have eliminated over 7000 trades with this simple
common sense requirement.
Total Gain
Total Trades
Total Days
Total HitRate
123
3323
9.7
48.4%
Another filter that we used looked at the volume behaviour prior to a breakout. If the volume
was supportive of the breakout then we would take the trade. Now the results improved to an
average gain of 1.81% in 10 days and a 53.1% hit rate.
Total Gain
Total Trades
Total Days
Total HitRate
181
1420
10.1
53.1%
And by selecting the best performing patterns we arrive at the following results. Now we have
an average gain of 1.96% in 10 days from an average of 100 trades per year. The strategy is
right 51.6% of the time.
Total Gain
Total Trades
Total Days
Total HitRate
196
814
10.2
51.6%
Total Gain
Total Trades
Total Days
Total HitRate
88
31065
9.1
44.9%
And when you compare the original results to the final results the profitability has doubled and
we have an improvement of more than 6% in the hit rate as well.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
The table below shows the performance of the Patterns of Success strategy up until the end of
2008. The overall hit rate for the strategy is 50.8% and the average gain per trade is 2.04% in
just under 10 days. The risk reward of the strategy is 2.25 to 1. And surprisingly 2008 was its
best year yet, despite the market volatility that occurred.
Years
Grand
Type Data
2001
2002
2003
2004
2005
2006
2007
2008
Total
Long Gain
123
-163
35
127
261
167
243
406
196
Trades 41
16
46
123
163
149
241
35
814
AvDays 10.3
9.1
9.5
11.4
10.1
10.8
9.9
7.5
10.2
HitRate 51.2% 18.8% 41.3% 57.7% 57.7% 55.0% 47.3% 45.7% 51.6%
Short Gain
690
86
-74
-155
206
-96
228
360
228
Trades 14
34
8
8
14
29
52
102
261
AvDays 11.1
8.4
6.3
10.0
8.4
8.3
7.3
8.4
8.3
HitRate 64.3% 47.1% 37.5% 25.0% 50.0% 37.9% 55.8% 48.0% 48.3%
Total Gain
267
6
19
110
257
124
240
372
204
Total Trades
55
50
54
131
177
178
293
137
1075
Total AvDays
10.5
8.6
9.0
11.4
10.0
10.4
9.4
8.1
9.7
Total HitRate
54.5% 38.0% 40.7% 55.7% 57.1% 52.2% 48.8% 47.4% 50.8%
For a free trial of Patterns of Success go to
http://learncfds.com/Trading-Chart-Patterns-With-Success.html
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
5. A Simple Timeless Method for Huge Gains
The key to making long term gains when trading CFDs is a profitable trading plan. Design a
plan and then stick to it. Most traders do not plan to fail, but many traders fail to plan. The plan
is an important part of your trading as it allows you to overcome many of the common mistakes
that new traders make in the markets. The market always provides the wrong feedback like a
fisherman, fishing with a fly. It flits and dances on top of the water until the trout takes the bait,
then the fish is hooked. The market does a similar thing, completing its little dance to hook in
the traders before moving sharply against the positions they have taken. A trading plan, will
make sure you only enter a trade when the odds or probability are in your favour and your
chance of success is much higher.
The number of CFD trading systems that
can be created are endless but what we
are going to look at today are the key
components of a CFD trading system and
what you might like to focus on when you
first get started. The mere fact that you are
searching for a CFD trading system is
proof enough that you moving to the next
stage of becoming a professional &
successful CFD trader.
When you look to get started and build your own CFD trading system it is important to have the
following components built into it.
9
9
9
9
9
Setup
Entry
Exit (both initial stop and in-profit stops)
Risk management
Execution
Whilst most new traders focus 95% of their time on the entry you might be pleased to know that
statistically only around 20% of your overall success comes from the ideal entry point. The entry
criteria are really used just for timing purposes and can be very simple, such as the current bar
takes out the previous high. Far more important than the entry, is the setup criteria.
The setup criteria can dramatically improve the results of your trades, by defining the conditions
that must be in place before entering a trade. As an example, if the market is in an up trend and
the sector is in an up trend then it is likely that the stock you are focusing on will perform better
than when this setup criteria does not exist. Fundamental valuations, seasonal patterns, large
trader positioning, sector leadership, etc can all be used as setup criteria.
The next component of your CFD trading system is your exit and it's vital to have both an initial
stop, sometimes referred to as a protective stop, and an in-profit stop. This covers both what to
do if the trade goes right and what to do if the trade goes wrong.
The last component of a successful CFD trading system is risk management and it is here that
you will determine how many CFDs to buy and the maximum loss you are willing to take. Now
as you can imagine the combinations of setup, entry, exit and risk management are literally
endless. The number one trading coach to turn to when it comes to risk management is Dr Van
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Tharp and his book “Trade Your Way to Financial Freedom” is a must-read bestseller.
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And the final piece of the puzzle is execution. The best strategy in the world is no use if it
cannot be effectively executed. This means choosing a broker that can execute for you on the
underlying instrument that you want to trade as well as determining the impact of slippage and
brokerage costs on the strategy. Slippage is the difference between the price you want to pay
and the price you do pay when the trade is executed and in some markets this can be
significant, especially if trades are executed outside normal trading hours. The other cost of
brokerage can also eat into your returns and the more often you trade the higher your costs.
Don’t be fooled by the fact that no brokerage is charged on currencies and indices, there is still
a cost incurred every time you make a trade and that cost is the difference between the buy and
the sell price, known as the spread. The more often you trade the higher your trading costs will
be.
How to Find Stocks That Will Double In Value
You might think that this is a really difficult task, but in fact it is very easy to do, with a bit of
hindsight. To develop a trading system it becomes essential to study the past as the future is
not so easy to study. Study the stocks that have doubled in value and attempt to find what they
have in common. Is there a fundamental valuation, a technical price pattern, or a news
announcement that is common in these stocks? A more sophisticated method is to use
statistical analysis of historical data to find price patterns that have a higher probability of
success. Which ever method you use history is a powerful guide to the future.
Successful trading is about developing a
strategy that skews the odds in your
favour and there are many different ways
of doing this.
But every successful
trading strategy comes down to
probabilities. A casino has an edge on
every game they play as the odds are in
their favour. The casino wants to play as
many games as it can to allow the edge
or probability to play out in its favour. The
casino is not concerned if it loses on one
spin of the roulette wheel and it is even
possible a player can walk away with
more than they started with. The casino
knows however that they will win overall
and they continue to play the game
allowing their edge to deliver profits to
them.
A successful trader will do the
same ensuring the odds are in your
favour when you enter a trade.
So a successful trader thinks in terms of probability. Is the probability higher that the market will
move up or down from here? If the probabilities are in your favour then take the trade. The
probability of a move can only be determined from history and there is no guarantee that the
move will play out exactly the same way in the future. Remember past performance is certainly
no guarantee of future performance, however if a strategy doesn’t work in the past the
probability certainly suggests that it is extremely unlikely the strategy will work in the future.
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A trading strategy running in real time with independent audited results is far more valuable than
something that has been back tested only. A back tested model can be used to curve fit data.
For example if you study historical price data you can find a cycle or a combination of cycles
that perfectly explains the historical price movement. But this is not a guarantee that the same
cyclical pattern will continue in the future. This study has fit the parameters perfectly to the
historical data and now the parameters should be verified by testing on a completely new set of
data. So if you tested from 2000 – 2006 to find the cycles you should then test how the
parameters perform from 2007 – 2008 to verify the effectiveness of the parameters in the future.
Testing on out of sample data is one way to verify results, but splitting data by time as we have
done here presents its own problems. The market conditions in 2007 and 2008 were very
different than they were in the previous six years. So a better way to split data is horizontally.
Here you run your back test on a portion of the data, say 70% of the stocks and then verify your
results by testing on the other 30% of the stocks. Ideally some random distribution is used to
split the data.
It is also possible to get some amazing results studying historical data by incorporating data that
is unknown at the time. If you run a back test on the UK Index (FTSE) over a five year period
you immediately have a problem. The composition of the indices changes over time as
companies that perform poorly are dropped from the index and other growing companies are
added. By running this back test you instantly assume that you know five years in advance
which companies will be in the FTSE. This is obviously not the case. In a similar way if you are
using the day’s closing price to generate an entry signal and expecting to enter on the close you
are unable to do this. Typically you will have to wait until open the next morning to enter the
trade. Also indicators like zigzag work superbly with hindsight, but do not work as well in real
time as the indicator adapts as new price information is added.
So while historical probabilities are a good place to start when building a trading strategy they
are not the perfect answer. And even if the probability is 90% that a certain event will happen,
that means that it will fail 10% of the time. Your strategy must still address what happens when
things do go wrong.
Discover How to Stack the Odds in Your Favour Trading CFDs
It is a very simple process to stack the odds in your favour and that is to follow a strategy that is
profitable. This may sound condescending to you, but you will be very surprised at how many
traders do not have a profitable strategy to follow, and even some of those that do, don’t follow
the strategy anyway. Developing a profitable strategy can take an enormous amount of time,
but ultimately is worth the time and effort that you contribute.
Do not enter the market unless you know that your strategy delivers results, both historically
and in real time testing. There are literally thousands of possibilities that you could pursue
when developing a trading strategy based on a wide variety of different ideas. The one thing
that all strategies have in common is that they skew the odds in your favour. So every
successful trading strategy comes down to probabilities.
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Consider the following table which shows the returns for different days of the week on the
Australian market.
XAO
Monday
Tuesday
Wednesday
Thursday
Friday
No.
Trades
Win %
Av Win
Risk
Reward
1350
1375
1380
1379
1365
50%
50%
52%
53%
54%
0.011%
-0.014%
0.057%
0.067%
0.055%
2.08
1.90
2.28
2.32
2.25
Thursday is the best day of the week with a favourable risk reward and win%. So clearly the
probability favours entering a trade long on a Thursday, though Wednesday and Friday are not
far behind. The probability also favours going short on a Tuesday. These probabilities on their
own are not enough to be a robust trading strategy, but they could be the base for building a
trading strategy by adding other signals to this, or taken into consideration when designing a
trading strategy.
So a successful trader thinks in terms of probability. Is the probability higher that the market will
move up or down from here? If the probabilities are in your favour then take the trade. Past
performance is certainly no guarantee of future performance, however if it doesn’t work in the
past the probability certainly suggests that it is extremely unlikely the strategy will work in the
future.
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Extending the analysis of the Australian market to the months of the year uncovers some
interesting results. Different times of the year present different trading opportunities.
XAO
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
No.
Trades
27
27
27
27
27
27
27
27
27
27
27
27
Win%
57%
48%
59%
81%
67%
37%
63%
70%
59%
63%
52%
74%
Risk
Average
Reward
0.0335%
1.12
-0.0244%
0.79
0.0388%
1.16
0.1469%
1.52
0.0228%
0.70
-0.0257%
1.09
0.0889%
1.67
0.0561%
0.87
0.0041%
0.72
-0.0648%
0.36
-0.0090%
0.83
0.0880%
1.66
April and December provide the best opportunities to trade the market long with a probability of
81% that the market will rise during April, 74% in December and 70% in August. On the short
side, Jun is the obvious stand out with the market only rising 37% of the time during June, so it
goes down 63% of the time. February is also weak with the market lower 52% of the time but
losing an average of -0.02% during the month.
The probabilities definitely favour some months as being better than others when trading
Australian shares, but once again this is unlikely to be a complete trading strategy. It is more
likely to be used as the basis or in conjunction with another strategy for entry and exit.
By analysing the seasonal patterns in the Australian market using data from the XAO over 27
years the following chart can be created. You can see there are times that probabilities favour
trading the market long and other times when trading short has a higher probability of success.
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Strong bullish periods in the Australian market occur in March, April, July, and December, while
strong bearish patterns occur in Jun, Sep and Oct. This same analysis can be conducted for
any market in the world and the results can be used to identify possible trading opportunities,
where the probability is in your favour.
When it comes time to choose a trading strategy, there are a few ways you can approach this.
To build your own system is probably the most satisfying and ultimately the best way to
approach the market as it allows you to perfectly tailor the strategy to suit your individual trading
personality. However a word of advice, this is not easy. It takes experience to even know
where to start looking and then an enormous amount of time to develop a profitable strategy.
Some of the strategies that I have used I have worked on for many years to get them to a point
that I am happy with the results they deliver.
For many people these strategies will take more time and expertise than they have access to,
including both market experience and with the advent of computers today programming
capabilities are becoming an essential requirement as well. It may not be practical to go down
this path for you.
It is very unlikely that if you are inclined to steal a trading system that you will actually know
anyone that has one worth stealing so we will ignore this as an option. So the best option for
most people is to buy a strategy that is currently working and making money. So where do you
find profitable strategies that are available for sale and are not just hyped up marketing to make
a quick dollar.
Scam Alert - Forex Trading Robot Scam
There is a lot of hype in the trading industry and the latest fad is Forex trading robots. The
basis of the claims that are made may be correct and I do know people successfully trading
Forex strategies that are completely automated. These systems are not for sale and certainly
not for $97 or whatever variation of this you come across. Many of these strategies claim very
high success rates with profits delivered 95% of the time. Take a look at the results of a simple
strategy I developed.
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This strategy took me two minutes to create and it produces a win% of 92.4%. So what is the
magic ingredient behind this strategy, and it will not cost you $97 to find out. The strategy is to
buy the top 20 Australian stocks on a Wednesday morning at open and sell them when they
reach a 1% gain. The stop loss is set at 20% below the entry. And believe it or not this strategy
makes money. Can it be that easy? Well yes. Do you have to pay $97 to be told how to do
this, absolutely not! But beware of brokerage costs and the big losers when they do arrive, this
can change the results dramatically.
With the rise of affiliate marketers on the internet it is very difficult to find a truly independent
view of these strategies, because guess what, all those reviewing the strategy get paid if you
decide to buy it after visiting their site. So cutting through the hype becomes important for you
to successfully find a strategy that works.
If you are still going to buy one of these products after reading this then please click:
9 FAP Turbo, http://www.fapturbo.com/?hop=learncfd
9 Forex Robot Trader, http://forexrobottrader.com/?hop=learncfd
9 Forex Megadroid, http://forex-megadroid.com/?hop=learncfd
………………….and we get paid!
Whilst the marketing of any CFD trading system is normally brilliant and demonstrates fantastic
returns, no one can hide from the real numbers of the actual trades completed. Before jumping
on board with any CFD trading system you need to do your due diligence on the very important
'numbers' of the system. Some of the more basic trading numbers to consider are the % win, %
loss, average win, average loss, profitability and the average time frame for a hold for both wins
and losses.
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Historical results are important and the more detail that can be provided of month by month
performance, or even down to trade by trade the more likely these results are to be accurate.
Beware of strategies that show only winning results. No strategy will win on every trade and it is
important to understand what happens when the strategy loses. Some strategies that show
very high win% can lose enormous amounts of money when they do not work, so check out the
losses that have occurred in the past. This is especially important if the strategy does not
incorporate a stop loss. The losses tell you as much, if not more, about the strategy than the
winning trades do.
Even though it is very easy to build a strategy that has a high success rate or win% this does
not make it a great strategy. While a lot of traders are seeking the Holy Grail trading strategy, it
does not necessarily have a 95% success rate. It is the combination of two factors risk reward
and hit rate that produce a profitable strategy and these are the key ingredients of trading
success.
Most people who consider using a CFD trading system are only interested in the winning trades
and nearly always neglect the systems drawdown period. A drawdown is where your trading
account sustains a period of losses. An example is if you had $10,000 in your trading account
and you lost $3,000 then you would have had a 30% drawdown.
Some of the best and most profitable trading systems can have drawdown in excess of 20 to
30% without any leverage. Consider if you add CFD leverage to the equation you can see that
you could easily wipe out your CFD trading account fairly quickly. Always consider the
maximum drawdown of the system and determine the appropriate risk management strategy to
ensure you stay well capitalised.
Run a mile when strategies are offering highly attractive fixed returns, like 2.8% per day. To get
into this particular strategy required a minimum investment of $20,000. So let’s do a simple
calculation on what our $20,000 would be worth after one year. By the end of year 1 our
$20,000 would have grown to $ 476,998,316.54. A pretty good result for doing nothing, but far
more likely to result in you receiving nothing!
The last point to consider is whether or not the system fits in with your psychological profile.
This can be a little tricky as you need to understand how your mind works and how you react in
certain circumstances.
As an example you may not be able to handle a high percentage of losing trades but the trading
system you are looking at is a trend following system with occasional big wins. As you can
imagine most people love big wins and will overlook the high percentage of losing trades and
begin trading a system that is just not right for them. There is a lot more to picking a winning
CFD trading system that just believing the marketing hype.
Ideally a strategy provides the trade signals to a third party and any system that has been
audited by an independent third party is worth consideration. With the growth of the internet
and affiliate marketing programs it can be hard to cut through the hype and find the truth that
underlies the trading strategies.
All strategies posted at http://learncfds.com/CFD-Trading-Strategies.html
independently verified by ourselves or another independent body.
have
been
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The Ultimate Strategy That Works Across All Time Frames
There is a very simple trading strategy that can be applied to any market and any timeframe
that you are trading. The strategy is based on the underlying principles of how trends in the
market are defined. An up trend is defined as a series of higher highs and higher lows, while a
down trend is defined as a series of lower highs and lower lows. The key to this strategy is
identifying the transition from one trend to another.
A
B
C
D
E
F
G
F
9 At point A, the share remains in a clear up trend.
9 By point B the share may be changing trend because a lower high has been formed, but
this is not confirmed until the market breaks below point C.
9 At point C, a change in trend is confirmed because the share will now form a lower low.
The pattern formed is often referred to as a head and shoulders reversal, with the right
shoulder confirming the trend change. An order can be placed to take advantage of this
change in trend when it occurs. A short sale would be initiated at point C, with an initial
stop set above the entry point.
9 It is not unusual for a share to retest the point from which it broke down, which is seen at
point D.
9 Pyramiding can be used to add to a position at point D or point E.
9 Profits can be taken either at the next reversal (point G) or after a sharp move in the
direction of the trade indicated by point F.
A long trade would be initiated when the share forms a higher low and a higher high is
confirmed at point G. Pyramiding and profit taking can be used in the same way as when
trading short. This may seem a very simple strategy, and there are other far more complex
strategies employed by many traders. Never underestimate simplicity. A trading strategy does
not need to be complex to make money.
This strategy can be applied on a weekly timeframe, daily or any intraday time period you wish
to trade. The strategy used in the following examples is based on exiting a long position or
entering a short position when the share breaks below the previous trough and exiting a short
position or entering a long position when the share breaks above a previous peak. No profit
targets or pyramiding have been used and stop losses are set at the previous trough for a long
entry and previous peak for a short entry. The chart below shows the strategy applied weekly to
Commonwealth Bank (CBA), with the results in the corresponding table.
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COMMONWEALTH BANK AUSTRALIA:AU - 40101010 (45.1000, 45.3100, 44.6200, 45.0500, +0.40000)
48.5
48.0
47.5
47.0
46.5
46.0
45.5
45.0
44.5
44.0
43.5
43.0
42.5
42.0
41.5
41.0
40.5
40.0
39.5
39.0
38.5
38.0
37.5
37.0
36.5
36.0
35.5
35.0
34.5
34.0
33.5
33.0
32.5
32.0
31.5
31.0
30.5
30.0
29.5
29.0
28.5
28.0
27.5
Short
Long
Long
Long
Short
Short
40000
30000
20000
10000
x1000
Nov
Dec
2005
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2006
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Commonwealth Bank, Weekly signals
When the share, shown by the black line, crosses below the red line, a signal to exit long
positions and enter a short position is given. In this case, the share quickly reverses direction to
stop out the short position, and a signal to go long is given by the share crossing the green line.
Next signal is to go short when the share crosses down below the red line. Once again, the
short signal is quickly stopped out. The long signal is then taken as the share climbs back
above the green line, generating a strong profit before the next short signal occurring in May.
The share is now set up to break through the green line and give a signal to go long. The
statistics show a profitable strategy returning approximately 16 per cent over 12 months, with a
hit rate of 40 per cent and a risk reward of 2.54. These figures show good gains to the trader
and do not take into account the leverage available using CFDs. The percentage return could
be up to 33 times this amount if using a 3 per cent initial margin. In all of the examples, the
impact of brokerage and finance charges has not been considered. This will reduce the return
but the strategy will remain profitable.
Return
Wins
Losses
Hit rate
Average gain
Average loss
Risk Reward
www.learncfds.com
16%
2
3
40%
3.73
−1.47
2.54
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The same strategy can be applied daily to CBA.
COMMONWEALTH BANK AUSTRALIA:AU - 40101010 (45.1100, 45.1500, 44.7200, 45.0500, +0.25000)
47.5
Short
47.0
46.5
46.0
Long
Short
Short
Long
45.5
45.0
44.5
Long
Short
44.0
43.5
Long Long
43.0
42.5
42.0
Short
41.5
41.0
40.5
10000
5000
x1000
6
February
13
20
27
6
March
13
20
27
3
April
10
18
24
1
May
8
15
22
29
5
June
13
19
26
3
July
10
17
24
31
7
August
14
Commonwealth Bank, Daily signals
The first short signal was quickly stopped out before going long and picking up a strong gain. A
profit was locked in with the next short signal, which again was a losing trade and stopped out,
before taking a long trade for another profit. The next short signal off the top was profitable and
the strongest trade during this period of time with the exit of the short, setting up the next long
trade. This long trade was stopped out for a loss, but the next long trade resulted in a good
profit, before once again going short. The share is now in an up trend, with the current position
being a long trade. The statistics when trading daily are even better than when trading weekly.
Both the hit rate and the edge ratio improve, resulting in higher returns. The 12 per cent return
is for six months, showing a raw gain of approximately 24 per cent p.a. without using any
leverage. Add in the leverage and the returns could skyrocket to more than 400 per cent p.a. at
a 5 per cent margin.
Return
Wins
Losses
Hit rate
Average gain
Average loss
Risk Reward
www.learncfds.com
12%
5
4
56%
1.5
−0.5
3.00
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The strategy can also be applied on an hourly basis.
Short
Short
Long
Short
Long
Short
Long
Long
Short
Commonwealth Bank of Australia, hourly signals
The first short trade delivers a strong profit with the rebound delivering a small profit on the long
side as well. The next short trade is stopped out for a loss, while the long trade delivers another
small profit. The next short trade could have delivered a small gain, but once again is stopped
out for a loss because no valid exit is provided to take profits. Then there is a period of trading
long, then short, then long, losing money on every trade as the share oscillates backwards and
forwards about its current level. The current position is a long trade, with the stop loss sitting
close to $45.60 to lock in a profit. Overall we can see once again a profitable strategy, with a
return of 7 per cent in one month before any leverage was employed. A 50 per cent win rate
and a great risk reward at 6.43 to 1 would deliver strong profits to any trader. The 7 per cent in a
month is again before leverage and this strategy could deliver a cash on cash return of 140 per
cent for the month.
Return
Wins
Losses
Hit rate
Average gain
Average loss
Risk Reward
www.learncfds.com
7%
4
4
50%
0.9
−0.14
6.43
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When looking at five-minute charts the same strategy can again be used.
Short
Short
Long
Short
Long
Commonwealth Bank, Five minute signals
Here we are fortunate that CBA has a volatile day so it provides several trading opportunities to
the trader. The first short trade initiated soon after open is profitable, then the consolidation
results in two trades that lose money before the trend reverses and a profit is booked on the
long side before the end of the trading day. Overall, a profitable day occurred, with the trades
delivering a 1 per cent return for the day without using any leverage. Add in the leverage using
a 5 per cent margin and the return adds up to 20 per cent for the day. Be aware that execution
of the strategy on shorter timeframes is far more difficult and requires not only close monitoring,
but quick reactions when the signal is given to trade. Accurate execution is required to achieve
the results shown here with a good hit rate and a very good edge ratio. Finance charges do not
apply to intraday trades and brokerage charges have not been taken into account in this
example.
Return
Wins
Losses
Hit rate
Average gain
Average loss
Risk Reward
1%
2
2
50%
0.215
−0.045
4.78
I have traded the strategy myself on a wide variety of different instruments with good results.
The key to ensure this strategy is profitable is to choose an instrument that trends strongly in
the timeframe you wish to trade.
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How to Have 15 Winning Months In A Row
How would you like to be profitable 15 months in a row. Well here we can show you a strategy
that has achieved exactly that. From Feb 2008 until April 2009 this strategy has been profitable
every month. That is some achievement given the volatility in the markets during this time.
Jan
Feb
Mar
2008 (0.5%) +4.6% +6.0%
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
+4.7%
+17.2% +2.5% +0.3% +0.5% +15.5% +2.4% +8.0% +1.2%
2009 +7.1% +1.0% +12.5% +15.7%
And these figures are not made up figures or marketing hype. They are independently audited
by a third party and the results could be duplicated by you. Signals are provided in advance of
the trades with all trades entered and exited on stop orders.
This is just one of many possible trading strategies that already exist for you to trade. And they
work. With over 8,000 trading strategies to choose from I am sure you will find a strategy that
works for you. Save yourself a huge amount of time and effort building and testing trading
strategies by following strategies that have already been proven to work in real time.
So how do you do this check out LearnCFDs.com short list of profitable strategies at
http://learncfds.collective2.com/systemlist
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6. Discover the Truth Behind CFD Brokers
While many traders believe that CFD brokers are out to get them personally this is not the truth.
The large CFD brokers turnover $1 trillion or more each year and it is in their best interests that
you open an account with them and trade. The CFD broker makes money on each transaction
that is executed and consequently they make more money if you trade more. Many of the CFD
brokers will go to extraordinary lengths to get you trading including providing education, forums
and incentives to open an account or improve your trading results.
Many novice traders blame CFDs and CFD brokers for their losses. Losing money can trigger
an emotional response and novice traders like to blame someone else for losing money. But it
is not Contracts for Difference (CFDs) that are responsible for the losses; it ultimately comes
back to the trader. It is essential to take responsibility for your own trading.
One of the reasons traders give for their belief that the CFD broker is out to get them is that the
CFD broker knows where your stop losses sit and therefore deliberately target these stops. The
trade then reverses rapidly and goes in the favoured direction. The trader makes a loss, even
though you were correct. In reality the CFD brokers have better things to do than chase stop
losses and I personally have had trades hit my stop loss and reverse as well as trades move to
within one point of my stop loss before reversing. The answer is careful stop placement,
making an allowance for the normal fluctuations of the underlying instrument. A CFD broker
cannot push the market around, it is the sum total of all the traders that move the market.
Sometimes this will hit your stop no matter how carefully you place the stop.
Many new traders trading shares also believe
that the CFD broker is out to get them because
their market maker broker re-quotes them a
higher entry price when buying the share.
These re-quotes are delivered because there is
insufficient volume at the level that the trader
wishes to trade, or the market has moved
rapidly from the current price. This is known as
slippage and is accepted when buying stocks.
Some of the stocks are executed at the cheaper
price, and some at a higher price providing an
average price higher than where the order was
placed.
A market maker can only execute the whole order or none of it, partial fills are not possible, so a
re-quote is provided at a price level that allows them to execute the whole order. Re-quotes are
not about ripping traders off, but just reflect the underlying execution of the order.
It is wrong to blame CFD brokers as the cause of your bad performance, it is always the trader.
Just as blaming the market is futile or saying the CFD broker is out to get you does not address
the underlying cause of the problem. A trader must take responsibility for his or her results and
with this belief system in place it is possible for you to change your outcomes. “If you think the
rest of the world is driving you crazy, you will have to send the rest of the world to a psychiatrist
for you to get better.”
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
As a result of thinking the broker is out to get them, some traders decide not to use stop losses
at all, or choose to place mental stops. When a trade is live it is very easy to get emotionally
involved with the trade and for the traders who use 'mental stops' it is easy to get flustered and
totally disregard the stop loss you initially had planned. Markets can also move very rapidly,
making a stop in the market an essential tool. If you do not yet have the discipline to use stops
on every trade and to manage your risk, then maybe you are not ready to trade CFDs.
Learn How to Beat CFD Brokers at Their Game
One of the common character traits of professional traders is the fact that they love to minimise
the day to day running costs of their business at every possible opportunity. It would pay to
follow their example by doing the same in your trading business.
Brokers make money
executing trades and there are a few ways you can reduce what you pay to the broker and
ensure that you keep more for yourself.
The key is to reduce the number of unnecessary trades to keep your costs down. Building or
following a strategy that provides a
limited number of trades dramatically
lowers the cost of trading and has been
shown to improve traders’ results
overall. It is not necessary to trade 200
times every day to make money, in fact
some of the best trading strategies
trade the end of day only with holding
times of a month or more. Every trade
you do costs you money, either in
brokerage or in the spread when you
enter and exit the trade, so keeping the
number of trades reasonable is likely to
improve your results.
Guaranteed stops may seem like a great idea to protect your positions, but in reality they are a
costly alternative to effectively managing your position size. After entering a stock at $23.00
you may want to exit with your stop placed at $22.50. The stock drops sharply and does not
trade at $22.50 instead gapping across your stop to next trade at $22.30. Your loss which was
supposed to be 50 cents all of a sudden becomes 70 cents. There are a few ways to reduce the
impact of this risk. Reduce your position size (discussed below); Use a guaranteed stop loss
(gets you out at $22.50 guaranteed!); or Trade currencies or indices (which rarely gap).
A guaranteed stop when trading CFDs enables you to minimise your worst case scenario by
capping the downside stop loss. As an example if you were on a stock that is dual listed like
BHP Billiton (ASX:BHP, LSE:BLT), then you will know that BHP has a large tendency to gap
each day. A guaranteed stop will exit you at the guaranteed price, even if the share does not
trade at that price.
Most CFD brokers allow you to place your guaranteed stop loss around 5% away from the
current price. So if BHP was trading at $30 then you could place your guaranteed stop loss no
closer than $28.50. So if the next day BHP happened to open at $28 then you would be
guaranteed by the CFD broker to get stopped out at $28.50.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
The traders who use a guaranteed stop loss or GSL usually incur a brokerage fee 3 to 5 times
higher than standard brokerage. Due to the fact that most professional traders are experts at
money-management they will tend to ignore and not use a guaranteed stop loss.
Instead, a professional CFD trader will be well aware of their exposure to the market at any one
time and will look to reduce positions if they see fit or if in fact volatility increases. So instead of
using guaranteed stop losses you can minimise your risk through correct position sizing and
appropriate stop losses.
The Best CFD Broker
Who is the best CFD broker and how do you decide which broker to use. With over 50 CFD
brokers to choose from and their numbers growing rapidly the choice can be daunting. But
there are a few simple techniques for narrowing down the field.
There are three ways you can trade CFDs:
9 Market Maker
9 Direct Market Access (DMA)
9 Exchange Traded CFDs - Offered by the Australian Stock Exchange (ASX)
Market maker orders are executed directly with the CFD broker and the CFD broker may then
buy the underlying instrument as protection for the position. Orders placed with a CFD broker
using Direct Market Access (DMA) are placed directly into the underlying market by the CFD
broker and when the order trades in the market your CFD order is executed. Exchange Traded
CFDs are offered by the Australian Stock Exchange (ASX) and are traded more like stocks with
orders placed into a central auction facility run by the ASX CFDs. The London Stock Exchange
was considering creating an exchange traded CFD market as well, but at this time its plans are
on hold.
The easiest way to choose between these three execution models is to determine what you are
likely to trade. To trade overseas shares, indices or currencies, you will have to choose a
market maker model or a very limited selection is available through the ASX CFDs. Direct
Market Access (DMA) is not offered for these instruments. If you choose to trade local shares
only, then you can choose any of the different execution models.
The choice now comes down to whether you wish to use guaranteed stops and once again
pushes towards the choice of a market maker platform, although a few CFD brokers do offer
guaranteed stops and the DMA execution model. On the other side of the coin, if participating in
the opening and closing auctions is important to you or your trading strategy, then you will be
choosing the DMA model or exchange traded CFDs. If it is important for you to see the orders
you place appear and execute in the underlying market, then again your choice will be to use a
DMA provider or trade exchange traded CFDs.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Most people will however make their selection based on the trading platform that they prefer to
use. All CFD Providers provide some form of trading platform to execute your trades. There are
a wide variety of platforms, functions and features available. Most trading platforms include
some form of charting as well as news items and different styles of orders for execution. Sign
up for a free trial of the platform to see which one works best for you. Check out our broker
page at http://learncfds.com/CFD-Brokers.html
Choosing the Best CFD broker for you will depend on finding a broker that provides the services
that you require for your trading. It will depend on the instruments you want to trade, the size of
your trading account, the frequency of your trading and the trading platform you want to use.
Automate Your Trading So You Can Enjoy More Free Time
It is a fact that most traders do have to sleep some time. I have not met a trader yet that can
stay awake for a whole week, though I have met a few that have tried. When you have open
positions it is tempting to watch the markets constantly, but is not sustainable. All of us humans
have to sleep some time.
But there are a few CFD order tricks that you can use to ensure that you do free up some time
and yet still place the trades that you want. CFD brokers offer a range of orders that allow you
to enter and exit under a range of different conditions. Market and limit orders will be familiar to
most traders. Market being buy or sell now and limit being buy up to a set limit price or sell
down to a set limit price. Limit orders can be used to get you into a trade at a set price.
Stop orders are placed into the market and only executed when the price reaches the preset
level. These orders are widely used to exit from a trade when it does not go right, but can also
be used to enter a trade in the direction of the trend. These orders can be set to trigger when a
stock breaks to a new high or if the underlying security moves through a preset level.
In conjunction with a stop or a limit entry you can place an if done or contingent order. The
second order is only triggered if the first order has been executed. Assuming you wanted to buy
the Dow Jones Industrial at 8150 or above and sell it at 7800 or below you could place two
separate orders a buy on stop at 8150 and a sell on stop at 7800. If these are not linked in any
way then it is possible that the sell order could be triggered first before the buy order executes.
By using an if done or contingent order the sell on stop order will only be placed after the buy
order has been executed.
!!US DOW JONES INDUSTRIAL (8,425.55, 8,458.12, 8,362.78, 8,410.65, -16.0898)
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
In the previous example on the Dow Jones if instead of an entry and a stop loss, you actually
wanted to execute only the order that triggered first then you can use a One Cancels Other
(OCO) order. Sell on stop if the share breaks down, but buy on stop if it breaks up. Whichever
order is executed first the other order is cancelled.
Another use for this style of order is when you hold an open position and wish to set both a stop
loss and a profit taking order on the trade. The profit taking order is set as a limit sell at 8700
while the stop loss is set as a stop sell order at 7990. Once again whichever order is executed
first the other order is cancelled.
A handful of CFD brokers also provide trailing stop type orders that follow a share as it
continues in the direction of the trade locking in more profit as it goes and then executes the exit
when the trade turns around. Most of these trailing orders are based on a specified points drop
below the current price.
Use of these orders allows you to specify when a trade should be executed and frees up your
time to do other things. They are well worth taking the time to understand and use effectively.
Now we can all get some sleep.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Discover the Single Technique that Saved One Trader from Losing Everything
Leaving stop orders in the market after exiting a position can be a disaster for your trading
account. A trader I know went long on gold the positions went well and he picked up a handy
little profit before deciding to exit the trade at market. After taking profits he was set to go on
holiday for two weeks. What he had forgotten about was the stop loss order he had placed on
the gold trade. With gold trading near $1,000 per oz and his stop sitting at $974 he was set to
suffer an enormous loss if gold fell away while he was away from the markets. Fortunately he
had developed a very simple habit of checking both his open positions and open orders before
exiting the CFD platform. While doing this he picked up the forgotten order and cancelled it
before heading off to enjoy his holiday.
Gold fell sharply from $1,000 per oz down to under $800 per oz over the next two weeks. He
would have faced a loss of over $170 per oz and at the size he was trading this was a large
amount of money. Cancelling the stop order saved him tens of thousands of dollars and in fact
all the money in his trading account.
If you decide to exit a position at
market, for any reason, check your
stop orders. If you have developed the
discipline to always use stops then the
stop order must be cancelled after the
trade is exited. If it is left open the
order can be executed and it could be
many hours, or worse days before you
realise that this has happened. The
trade may or may not go in your favour,
how it plays out is an unknown, but
certainly not something you want left to
chance.
Like forgetting about a stop loss, there are certain silly mistakes that all traders have made at
some point in their trading careers, even though there are simple techniques that can be used
to avoid them. Most of these are based around the execution of the trades.
One of the first mistakes that is very common is pushing the buy button when you meant to sell
or the sell button when you meant to buy. This often happens when exiting a position especially
if you are trading both long and short. Instead of exiting the position you end up with a position
twice the size that you started with.
This mistake is easily caught by checking your open positions after you place a trade to ensure
that the trade you have placed did what you expected. If caught immediately this mistake is
easily rectified and is likely to only cost a small sum for a stupid mistake. If you do not realise
your mistake and the position is left open this can have disastrous consequences for your
account. Creating a simple habit to check your open positions or pending orders after every
order is placed will ensure that this mistake is quickly rectified.
And extending this a step further, before exiting the trading platform at the end of a trading
session make sure you check your open positions match your stop loss orders to avoid any
surprises when you next open your trading platform.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Assuming the trader has the discipline to calculate their position size in the first place,
sometimes it is possible to get it wrong. The most common error here is not usually bad maths,
it is incorrectly entering the number of zeros. Too many zeros and your risk increases 10 times,
too few and your profits evaporate.
Checking your open position after the order is placed will enable you to pick up this error as the
face value of the position will be very different to your normal size.
To avoid losing money many
traders will reason that a tight stop
will protect them, but placing a stop
loss too tight can result in the
trader being exited prematurely
from the trade. The trader has
created exactly what they wished
to avoid. It is a bit like wearing
tight jeans, it feels good until it cuts
off circulation to your legs. Stops
must be placed far enough away
from the price action to exit you
from a position if your trade view
turns out to be wrong. Tightening
a stop to avoid losing money very
often results in a loss.
The last common mistake is to enter a trade when you know that you should not. It is common
for new traders to chase a share and jump on board after the share has been moving, however
they will quickly learn the error of their ways. A beginner has an excuse, they do not know any
different, but even more experienced traders are caught in this trap.
Whether it is the fear of missing out on a move that drives a trader to act, or the inability to stay
out of the market when market conditions are not favourable, the results are often the same. It
may be that emotionally the trader is not ready to trade, they could be tired, distracted or
stressed and still enter a trade even though they know better.
These habits can be much harder to overcome as it is almost hardwired into your personality.
But remember that there are an endless number of trades available, literally more possibilities
than you could imagine and if you do not trade now, there will always be another opportunity.
Using a checklist to make sure all your setup and entry criteria are in place is one way to avoid
the impulsiveness that can be so costly in the markets. Stick to your strategy.
While no trader will be right every time, these silly mistakes can be easily avoided or caught
before they have any real impact on your account.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
7. Are Successful Traders Born or Bred?
There was a very famous trading experiment conducted in the 1980’s by Richard Dennis and
William Eckhardt. They advertised in Barron’s, the Wall Street Journal and the New York Times
for people who would be taught to trade and then provided with capital to trade. At the time
Richard Dennis was one of the most well known traders in the world and he received over 1,000
applications, from which he interviewed 80 and selected 10 people, plus 3 others that were
already known to him. These 13 traders were know as the Turtles and went on to make over
80% per annum on accounts starting with $500,000 to $2 million for the next four years.
Richard Dennis proved that with a simple set of rules, he could take people with little or no
trading experience and make them excellent traders.
So without a doubt traders can be taught to trade. But the key behind this experiment was the
traders were taught to follow a profitable strategy. They weren’t taught all of the skills that had
made Richard Dennis and William Eckhardt famous in their own right. They were not taught
how to develop a strategy, how to know where to place stops or how to develop a money
management strategy. They were taught a strategy and instructed to follow it. Those that were
successful did as they were told.
So learning to trade can be difficult or it can be relatively easy. When you first enter the
markets there is an overwhelming amount of information available and some of the advice will
even seem to be conflicting. One person will tell you to buy shares that are going down and
another will tell you to buy shares that are going up. And what is more both can be right. But to
get started quickly and short cut years of learning, learn to follow a strategy. This in itself is not
the easiest thing in the world to do. I can provide you with a clear strategy that has clearly
defined entry signals and clearly defined exit signals and I guarantee that most people will be
unable to follow it.
It requires you to first of all trust the strategy and believe that the strategy works, before you
even start trading it. It is to ensure that you are comfortable with the frequency of trades,
frequency of wins and the drawdown the strategy delivers. Finding a strategy that is right for
you is a very important part of the process and it may pay to try out a few until you can find one
that you are comfortable with.
It is very possible to teach anyone to follow a strategy, but it is far more challenging for that
person to execute the strategy if they are not in alignment with the strategy. The strategy may
be simple, learning to follow the strategy is not so simple.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
What the Top 3% of Profitable Traders Know
The greatest CFD risk of all however is pure and simple human fear and greed. This is where
you place on a position that is too large for your account size, remove your stop so you do not
lose money or fail to enter the best trade of the year. All of these moves are guaranteed to
result in disaster. Many CFD Traders over leverage their accounts and end up losing large
sums of money. It is the inability to effectively manage risk that ultimately leads to their
downfall.
How many bad trades have you stayed with as a result of your ridiculously huge ego? If you
don't think you have an ego just ask your wife, husband or significant other and get them to be
honest. Your ego has absolutely no place in your trading world if you are to achieve trading
success. The greatest trading minds discovered early on in their career the importance of
removing their ego and it wasn't until that point that success was achieved. In addition to
removing their ego, the trading greats knew the vital importance of being coachable and
adapting to new market conditions.
Egoless trading is not only possible but critical if you are to win in these ever changing markets.
A trading coach or mentor will give you techniques and strategies to remove your ego and get
you on the path to consistent profits. If you haven't already done so, find a market coach to get
your trading back on track. All the best sports people and the most profitable traders in the
world capitalise on the skills of a coach. As a Contract for difference (CFD) trader your potential
is usually limited to the psychological blocks holding YOU back. Here we'll take a look at the key
reasons you need a CFD trading coach.
9 97% of people have no clear direction or goal they are trying to achieve. A trading coach
provides guidance and will give you enormous clarity.
9 You keep making the same stupid mistakes over and over again.
9 Your confidence has hit an all time low and you're not sure you can bounce back to place
the next trade.
Let's face it. You initially thought trading was a one way ticket to an easy life paved with fast
cars, exotic holidays and bundles of cash. Who needs goals right? WRONG!
Without defining a clear direction as to where you are going then any result (good or bad) will
suffice. Your mind is like a heat seeking missile that is searching for its target. How will it ever
hit its target if you haven't defined exactly what that target is? I can assure you it won't.
A little secret most people don't know is that your mind has what is called the Reticular
Activating System (RAS) which means you tend to attract that which you focus on the most. If
you just bought a new red BMW, isn't it funny that you notice hundreds of these red BMW's
when before you hadn't? That's your RAS guiding you to those things you are focusing on. A
CFD trading coach will pin point the exact targets you need to hit based on a structured
program designed to establish clear cut goals to give your clarity and laser beam focus.
Making losses in your CFD trading is hard to take, but making a loss on a stupid error that
continues to raise its ugly head is frustrating beyond measure. That unnecessary $600 loss is
going to take some time to get back, but the reality is that mistake should not have been made
(again) and you know it.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Some CFD trading mistakes stem from deep seeded psychological issues that go way back to
when you were a child. A CFD trading coach's job is to delve into the recesses of your mind and
find out the root cause of the problem and then program in a new solution so those crazy little
mistakes are a thing of the past.
Lastly, your trading confidence when day trading Contracts for Difference (CFDs) is a critical
component to your daily success or lack of it. Without the confidence to place a trade you
cannot achieve your daily objectives, nor can you consistently profit from the markets. A CFD
trading coach will help you define your edge in the markets and provide a structure/routine to
bounce back from those emotional lows if and when they happen again. A good market coach
will give you anchors that have been programmed in enabling you to literally snap out of any
doldrums and get back on track.
Make it a priority to get into the top 3% of profitable traders and manifest for yourself the lifestyle
and financial rewards you deserve. You've put in the hard work to this point now its time to
capitalise and take your success to the next level.
Hedge Fund Manager Shares the Secrets of His Success
Quite often traders lose money in the markets simply because they have unrealistic
expectations about their likely returns.
Even the best trading systems and strategies if not given adequate time and space to perform,
will produce disappointing outcomes for their users. So how do you know if your expectations
are realistic? When drawing up your goals and expectations, be sure to remove “need” from
your situation. For example, if you need to generate a certain amount of income per month for
living expenses and expect to consistently make that from your trading, you are likely setting
yourself up for frustration and disappointment.
Even the most experienced of traders find this difficult if they are reliant on their monthly trading
profits for their living expenses. Look to supplement your income from trading, not replace it. Or
better still, allow your trading accounts to grow for 18 months without any need to draw from
them. This will give you time to get into the flow of your strategy and removes the desperate
energy of need.
The other problem with trading out of a need for consistent income is that you will only focus on
strategies that produce monthly income. There is nothing wrong with these types of strategies,
but it’s important to trade strategies that are aligned with your strengths and personality type.
I used to be a spot FX trader jobbing the market on the back of customer flows and an order
book. I was terrible at it. My personality is more prone to stability than stimulation, and
consequently a short term strategy scalping the market is not where my strengths lie.
When I moved into more medium term directional strategies, my profitability increased
dramatically. Given the medium term nature of my strategies, I don’t make money every month.
So if I was reliant on income on a monthly basis from my trading, it would be an unrealistic
expectation and would no doubt lead to frustration and disappointment.
When testing a strategy, it is easy to get excited about the potential returns. But that is of course
only one side to the equation. Have a look at the depth of the drawdown and ask yourself if you
would be able to trade through it if it happened again.
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
It might be that you are not comfortable with the depth of the drawdown, and your account size
or risk management may not be appropriate. What you may then find is that by reducing your
account size, or reducing your risk, your profit expectations will also need to be reviewed.
Realistic expectations lead to peace of mind and greater profits.
By looking honestly at your expectations, you might just find that it uncovers holes in your
strategies and processes. This is a great thing as it is always better to see reality before the
market shows it to us the hard way.
Learn the Truth About CFD Trading From A Private Trader
The key ingredient behind successful CFD trading is to follow a proven strategy. The role of the
trader is to execute the strategy perfectly. When a signal arrives take the entry or exit signal
and execute it flawlessly. It is not about making it up as you go along and it is definitely not
about questioning the strategy while you are trading. There is a time for strategy development
and then there is a time to execute the strategy. When you are in the market do not change
your strategy mid stream. If you have a new idea or refinement, test it and if it works then
integrate it into your strategy for trades in the future.
Flawless execution is the successful trader’s goal and this will allow you to profit from the
markets. It is about doing it right, not being right. The samurai warrior trained for hours to be
able to perfect their craft and a trader should do the same. Like the samurai warrior practice is
vitally important to get the execution exact. Remember that as a trader it is not possible to
control the outcome of your trading, it is only possible to control the way your strategy is
executed. It is important to focus on the process not the end result and the end result will take
care of itself.
In addition to this you must take full responsibility
for your actions and the results you are
achieving. By doing this you place yourself in a
position to change the outcome. The moment
you start to blame, the market, the broker, the
system provider or anyone else you are no
longer in control of what is happening. Take
responsibility for your trades and you are in a
position to change the results you are achieving.
And lastly remember to ask for help. It is hard work to learn everything yourself. Find someone
that has already done what you want to do and ask him or her for help. A mentor is one of the
ways you can quickly shortcut your learning process. When I started trading I had a mentor.
My mentor taught me a number of tricks that saved me thousand of dollars and showed me
strategies that made thousand of dollars as well. A mentor is a powerful assistant on the path
of learning to trade.
For further education check out
http://learncfds.com/Links_Stock_Market_Coaching_Sites.html
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How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
Summary
Congratulations you now have all the building blocks in place to be a successful CFD Trader.
With just a quick recap we can look at all the pieces of the puzzle that make up your path to
success.
Initially you must understand the power of CFD leverage and the impact that leverage will have
on your results. By effectively controlling your risk CFD leverage is extremely beneficial. But
remember to start out small. You can always dial up the risk once you are confident with the
results you are achieving.
Next it comes down to setting realistic goals and objectives for your CFD trading. You will have
to decide what to trade as it is impossible to trade every opportunity that comes along with
CFDS. You have too much choice. When setting goals or objectives it is better to focus on the
process of trading rather than the outcomes. Your objectives should be to control your risk, by
executing the entries and exits the strategy provides and continuing your development as a
trader.
Controlling your risk is a key to successful CFD trading. Risk can be controlled utilising a stop
loss and calculating your position size. The combination of these two factors is important as it
controls the losses that you encounter. By controlling your losses you will still be trading and be
around for the gains when they do ultimately arrive.
It is the combination of two numbers that is essential to your success. This is your hit rate, how
often you are right and your risk reward, how much you make when you are right compared to
what you lose when you are wrong. One of these numbers in isolation is not enough. Lotto has
a great risk reward, but a lousy hit rate so ensure that your trading strategy is not about luck.
Make sure you are following a strategy that works.
There are many thousands of possible strategies that are available to you as a trader so it is
important that you follow a proven strategy. While there are no guarantees in the markets a
strategy that has been proven to work historically is far more likely to work in the future. If a
strategy has not worked in the past it is just pure luck if that strategy was to work in the future.
So ensure you follow a strategy that works. You can either develop your own strategy or use
one that has already been developed for you.
CFD brokers are an essential partner in your trading success. They are not out to get you and
they certainly do not chase after your stops as they have far more important things to do. It is
the CFD broker’s best interest that you trade and make money. The more trades you make the
more money the broker makes. This is why the brokers go out of their way to help you. Take
responsibility for your own trades and beware of the account killing mistakes that can occur.
Make sure you develop the simple habits that can overcome these mistakes and make them
part of your trading routine.
Successful traders are not born that way, they learnt to trade just like everyone else. But
remember there is an apprenticeship, followed by professional practice, before you can become
a master of your craft. It takes time to learn and a mentor can assist you to short cut that
learning process.
I wish you successful trading!
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Page 67 of 68
How to Become a Successful CFD Trader - 7 Powerful Secrets to Gain Financial Freedom Fast!
www.learncfds.com
Page 68 of 68