Successfully Trading CFDs Online Tutorial

Submitted by Craig Strzelecki on 28 June, 2008 - 12:22

This tutorial can teach you how to successfully trade CFDs online, also about profit-loss, win-loss and your profitability ratios

It is surprising to note that most CFD traders trade online without having any specific trading plan with them. They do not fully comprehend the details of any CFD trading system. There are several types of trading systems available that are purely mechanical. However, there are several other systems that also rely on trader judgment which is gained over a period of time and experience in the market.

If you wish to successfully learn about CFD trading systems online, it is wise to research about any trading systems to suit your needs. Basically, any good CFD trading system has a set of rules. Mechanical systems cshould be formulaised so someone else can also follow the system accurately. It is equally important to backtest any system for at least past 10 years. If it shows profitable results, then it is suitable for your trading style.

These trading systems eventually help to generate profits on consistent basis from your CFD trading online. Once the system is implemented successfully, it is important to monitor the performance regularly in order to book profits by CFD trading. The general rule of thumb is to keep emotions at bay and run your trading system in a business-like manner.

It is equally important to remember that you should know three important steps for successful CFD trading online. Firstly, you should know when to book your losses and exit the market. There are some traders who do not exercise their right to stop-loss. This way lose considerable amount of money before actually exiting the market. On the other hand, your stop loss should not be too small such that you exit the market immediately in case of minor market movements of CFD price.

Secondly, you should also let your profits run. If the trade is in your favour, you should allow enough margin for your CFD profits to run high so that your profits become large. However, the stop loss should be in the close range so that your loss is minised.

Lastly, both the above steps should lead you to a healthy profit-loss ratio. A Profit-Loss ratio is calculated by comparing average profit with average loss. For instance, if your average profit for a period is $1000 and your average loss is $300 then your profit loss ratio is 3 ($1000/$300).

You should be able to achieve a profitability ratio of more than 1 if your system is highly profitable. Profitability ratio is obtained by multiplying profit-loss ratio by win-loss ratio. Win-loss ratio pertains to number of wins against number of losses. If you have 40% winning trades and 60% losing trade, your win-loss ration is .66 (40/60 or 40:60). Thus, your profitability ratio in this case is 1.98 (3 x .66).

No matter which trading system you adopt, you shall always have winning trades and losing trades. Your trades should also take into account your other expenses such as commissions, interests, etc. If your winning trades are higher even after taking these expenses into account, your trading system is profitable!