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Managing your psyche in investing is essential but this is ever so true when it come to CFDs.
Managing the exhilaration of great timing of CFD entry and exit points is somewhat easier than managing the pain if things go wrong.
I have tried numerous techniques with CFDs from holding short term positions - just a few days - to buy and hold for several weeks. I have been trading CFDs now for some years as part of my spread of leverage across a number of funds.
I now aim to buy and hold for a few weeks, selling generally to prune stocks that don’t perform as I anticipated. I am now inclined to allow my CFDs to run even after a first wave five and wait for profits to continue to a second wave five. Of course when you do this you must expect to see fluctuations in your account.
EQN is a case in point:
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You can see the greyed wave five in the chart and this means the minimum requirements for wave five have been met. However there is very good chance the first horizontal line will be hit and even the second. Since the first wave five was met the stock has come back and this can be one form of pain. Watching profits slip away because you have hung in for that little extra can be annoying but this is something you can learn to live with. But I have found in the past sometimes that can be a whole lot extra and it is worth the wait.
The most excruciating of all pain with CFDs is if you buy and the stock continues south. If you are buying a number of stocks this should not happen to all your trades otherwise you need to look at your selection criteria. Unless of course the whole market goes south – and I have experienced that – then you just have to bail out and that means taking the punishment like a grown man or woman. It is a lesson learnt. This should be rare occurrence but it can happen.
The other pain can be in a range trading market. In a range trading market there will be stocks drifting sideways but there will also be stocks rising and stocks falling. So it is not necessarily a market to ignore as there is money to be made.
We are experiencing such a market right now:
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It is important in this current market to buy low and sell high. The reverse can be excruciating indeed with CFDs.
With CFDs there will be times when the market does go ‘mildly’ against you and that can be a drawn out, painful process. If I still believe in my view then I stick to my plan. And yes wear the violent fluctuations. My experience is that the day after you sell the market moves in the very direction you had planned.
So I stick with my positions and patiently see out my plan. But it is important not to make any pain excruciating by sitting watching the red all over your screen all day long. Find yourself something interesting and distracting to do. There is little point in fiddling with your potions either. This does not help. I will carry out my daily trading routine and get on with something else.
Castigating yourself can be quite damaging and is not just negative but it will erode your confidence for next time around. It is maybe not even a time to ask what went wrong with your trades. That is better done in a much cooler moment.
All the above is based on the premises that you have a good system, your CFD skill is reasonable and your money management is in good shape. And a most important part of this is trading only with money you can afford to lose.
CFDs are a great instrument but require a well honed technique. And then there is extraordinary money to be made.
Enjoy the ride
Tom Scollon
Chief Analyst
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