Articles of Interest

CFD trading is a relatively new concept to most traders and investors in Australia, which is understandable given the mechanics of CFDs are different to traditional share trading. Having an advisor or trading mentor who is able to explain the concept of CFDs and assist you to identify trading opportunities is often a relatively safe way for new CFD traders to gain exposure to financial markets.

There are many stockbrokers and financial advisors in Australia who are able to help traders and investors looking to enter the stock market, however very few have an in-depth experience and understanding of CFDs and how they can be used not only as a hedging tool over a share portfolio but also as a great way to gain exposure to global stocks, commodities, indices and forex pairs.

Some CFD providers are able to provide you with basic CFD trading advice and education however many of them will not provide you with CFD trading recommendations. There are however some CFD providers who are able to provide you with advice and trading recommendations, it is these providers that often also specialise in other aspects of money management including financial planning, corporate advisory and funds management. Dealing with a CFD provider that does not solely specialise in CFD trading is often a good idea for novice traders looking for some assistance in managing their trading portfolio and understanding the risks and benefits CFDs.

Dealing with CFD providers who offer an extensive range of products and services aside from solely offering an online trading platform has a number of advantages in that often you will be assigned a personal account manager with whom you can liaise on a daily basis and ask questions. If you require additional services such as being contacted in the event of a trading idea you can also elect this, however you may be charged a higher commission rate when using this service. Often added benefits such as being able to participate in highly sought after placements and IPO’s will also be provided. 

In many cases getting CFD trading advice from your stock broker or CFD provider will cost more than trading for yourself online, however the added commission charges are relatively insignificant when you consider the benefits and are far cheaper than the looses that many novice traders incur when placing trades without a well thought out trading plan or strategy.

Before trading CFDs either online yourself or with a CFD provider who is able to provide you with CFD trading advice it is essential that you understand not only the benefits of CFD trading but also the risks. Often newbie CFD traders fail to understand that although the leverage associated with CFD trading can result in gains it can also result in large losses, this is why having an understanding of risk management is important.

To learn more about CFD trading it is advisable that you read this free CFD Guide.

Day trading can be considered a made to order profession. To a large extent you can work when and where you want. You can dictate exactly how you want to spend your day, working from your office or home, or even when travelling.

You can live anywhere in the world and you can finally have a sense of having control over your financial affairs. You are solely in control. So what is the downside? The very fact that you have total control is sometimes a frightening prospect for many, especially those who find it difficult to create their own timetable.

Technically speaking the only difference between day trading and other forms of trading is the time frame used. Instead of taking positions for weeks or years, day traders typically hold positions throughout the day, often liquidating positions before the market close. Active day trading requires much more focus than other types of trading due to the shorter time frame and because the market moves quickly over the shorter term.

Consider the thoughts and motivations that are running through your mind and if your thoughts are a little off don’t hesitate to take a break. Day trading is hard work and it requires constant attention. You need to be motivated when you are day trading.

Discipline is by far one of the biggest attributes of successful traders. Keep a watchful eye on your bad habits. Know what they are and look to work on them as soon as possible. One way to check to see if you are trading in a disciplined way is to see if you are following your rules. There is a reason why you wrote your rules this was to ensure that you follow them to their completion.

From a day trading perspective you are best off evaluating your rules at the end of each month due to the shorter time frame of this style of trading. Keep in mind that you will break your rules occasionally and this is not a good habit to have.  Find ways to overcome breaking your rules and look to rectify the problem as soon as possible.

Money management is essential if you want to become a successful day trader. In fact money management is one of the essential elements of successful trading over any time frame.  Certainly if you want to be around for many years trading you are going to need to apply successful money management strategies. 

There are whole books dedicated to the area of money management. You need to find a method that you are comfortable with.

Always look to enter trades that have the potential to gain twice what you are risking on the trade. This is known as your risk versus reward. If you can maintain a risk reward in excess of 1 to 2 then you are well on your way to being a profitable trader.

Never forget to use stop losses when you are placing your orders into the market. This is your insurance policy. You need to be aware of exactly where your stops are prior to even entering the trade. This is a good discipline to have and will ensure you are constantly thinking of your downside protection.

Trading should be effortless and you must remain calm. This is especially true when you are faced with a loss. Maintain your calm and react in accordance with your rules. Mentally rehearse your worse case scenarios, so if they occur you can remain calm because you are mentally prepared.

Only ever discuss your trade with a technical analyst and do not discuss open positions with other traders. They will want to give you their view of the market with no consideration of your trading methodology. Remember no one has put as much effort into your trading system and style as what you have. You know your time frames and your stops so you need to stick to them. Other traders will have a bias whereas a technical analyst can appreciate your style of trading and give their thoughts accordingly.

Maintain your independence. If you find yourself reaching for the phone or looking to send an email to someone in order to back up that your view is correct then exit the trade. It is likely this trade is not correct and you should exit. 

Once you have conducted your analysis and you have done your numbers then do not doubt yourself. There is a reason why you have come up with your entry and exit signals at your key points so believe in those numbers and do not second guess yourself.

Again emphasis needs to be placed on the importance of being patient when trading. If there is nothing to trade then there is nothing to trade full stop. Do not force yourself to trade. Once you are in sync with the market you will find that trading becomes rather effortless.

If you are unsure at any stage then be prepared to walk away from the market and come back later. The market has a tendency to do this from time to time. Don’t be fooled and simply walk away.

Listen to your intuition as it usually knows something that your conscious mind may not. Your intuition is something that sharpens as you become more experienced as a trader.

Be aware of your stress levels. If you feel you’re getting stressed then get up and do some form of exercise or even get a massage. Day trading is a stressful exercise and one that requires constant attention and motivation so it’s easy to get stressed. Get some perspective about trading and life. There is more to life than just trading. Spend time with your family, friends and loved ones.  Schedule time for some relaxation and sporting activities to refresh and recharge your batteries. 

When you are trading it’s also necessary to be flexible with your positions.  Market conditions can change rapidly so you need to be flexible with your thoughts on the market.

Stick to your chosen market and your particular time frame and do not stray from those. When you trade like this then you are in control instead of the market being in control of you. Only look to trade in high volume periods.

Never be afraid of taking profit. You cannot go broke taking profits! If you find yourself getting out of a trade at a profit and the trend continues then let the other traders fight over the last part of the move. If you continue to worry that you are missing out on profits after you exit, then simply design and test a re-entry technique that you can build some confidence around.  If, as a short term trader, you find yourself making profits on a daily basis then it’s going to be very difficult to lose money long term.

When you are running a particular trade you should look to write down your reasons for entering it. This will help you later when you wish to evaluate your past trades in order to learn from them. By keeping good records and writing down precisely why you entered the trade you increase your learning curve and success dramatically.  Take the extra time to do this and you will become a better trader.

You need to understand whether you are in front or behind for the day, week or month. Keep these numbers handy as you need to take responsibility for them. 

We all know that hindsight is a great educator, so after you have completed a month’s worth of trades take some time to evaluate what you have done and ask yourself the question: “If I could do this trade again what would I do differently?”  This will assist you in becoming a better trader and a more consistent and successful trader in the long term.

You can find out more about day trading CFDs by downloading our free CFD Guide.

The growing amount of misinformation surrounding forex robots is making it increasingly difficult for the average retail trader to distinguish whether or not they are an effective means of getting exposure in the forex market.  This misinformation is due largely to the fact that the internet is saturated with content from robot developers more interested in lining their pockets, than growing your trading account.
 
I should point out that this article is by no means an attack on the forex robot community, rather it is an unbiased perspective aimed at educating traders so you can make more informed decisions when entering the markets. By the end of this article you will know some of the important pros and cons of robots as well as ways to filter the good from the bad developers.

The developers of robots focus on a few key selling points in order to market their product effectively. These selling points have clear advantages and disadvantages and I will focus on these to help you distinguish whether or not robots remain an effective investment vehicle for yourself.

Access to markets
Forex robots provide traders access to markets 24 hours a day 5.5 days a week. Since most retail traders do not want to spend that much time in front of the computer, this is an effective way to capture more opportunities and potentially increase profits. It also allows trader’s access to a greater variety of currency pairs, more than they would be able to analyse and trade themselves.

Although they can generate more opportunities, robots do have their limitations. Robots limit which broker you use as most robots aimed at the retail community will only run on MT4. The opportunities you are then able to take are limited by the spread your broker offers for that particular currency pair, (some robots will not take opportunities if the spread is too wide). For this reason it is recommended that you chose an MT4 broker that uses and electronic communications network (ECN) feed, as the spreads are typically tighter. Another limitation of robots is the fact that they are typically run off your computer as a virtual private server (VPS), this means that they need exclusive access to your trading account and require you to keep your computer running and platform open to get continued access to the forex market 24/5.5. Usually you will have to run two trading accounts if you wish to do your own discretionary trading as well as the robots.

Built in strategy
One of the biggest challenges facing new traders is developing an understanding of the market, and then building a strategy around that understanding. This can take years and thousands of dollars to develop. Robots remove the need for traders to build a strategy or even understand the market. Assuming the robot is profitable; this may provide traders with a more cost effective way of entering the market, increasing their chances due to the robot having a superior strategy.

It should be noted that in order for the robot to be effective the owner will still have to ‘tweak’ it for optimal results. In this situation it would be beneficial to have some understanding of trading or the forex market so the parameters can be set as optimally as possible. In my opinion, it is up to the vendor of the robot to provide its customers with continued support and instructions on how to optimise the robots settings for best results.

You should also take into account ‘who designed the robot?’ was it designed by a respected company with years of market experience, or an IT guru with internet marketing experience. The long term effectiveness of the strategy of the robot will be dependent on this factor.

Trade execution
Trade order execution is paramount to your trading and ultimately profitability. Robots can be better with regards to order execution due to the speed with which they think and act across multiple currency pairs. This provides a distinct advantage over typical discretionary trading, as more trades can be executed sooner, increasing exposure and potentially profits.

There is some disparity between demo and live trading with robots, due to execution of orders further illustrating the importance of the broker you choose to run your robot with. As was said above an MT4 broker using an ECN as opposed to a deal desk would be optimal for results.

Psychology  
Forex robots remove the need for the owner to think when engaging in a trade. One of the three pillars of an effective trading system; psychology, is what prevents traders from turning a winning strategy into a successful and profitable system. The owner simply turns the robot on, enters parameters specific to their risk and trading profile, and the robot does the rest. This is one of the most attractive features of a robot, leaving the trader to tweak the system based on statistics and profitability rather than emotion.

Money management
Forex robots can come with built in money management profiles that can be customised to meet the traders risk profile. Most new traders enter the forex market with little or no understanding of money management, so having a robot with a built in money management system puts them at immediate advantage than if they were to begin trading on their own. The money management employed by the robot is especially important and consideration should be given to this when choosing a robot.

Market conditions
Although this isn’t a point highlighted by robot developers when typically talking about the advantages and disadvantages of robots, I think it’s important to highlight that this is one of the key reasons robots can fail. There are so many variables in the forex market giving rise to changing conditions it is hard for robots and their developers to keep up. Robots for example a robot cannot detect when there is thinner liquidity giving rise to sudden sharp price movements, or breaking news causing volatility. As humans we can make ourselves aware of these factors and adjust our approach immediately.

When there are so many variables affecting currencies at any one time giving rise to market change and volatility, it seems almost impossible that a piece of software could possibly factor in all these changes to remain profitable and the strategy valid. Because of this robots are inherently designed to fail. This problem can be corrected if the robot is constantly updated and the strategy refined to adapt to changing market condition.

Cost
The last point to consider is cost. With robots, like anything in life, you get what you pay for. More expensive robots are likely to have more research and development behind them. While a support team will help you get setup and customise the robot to your settings, as well as provide you with updates. The less expensive variety has online manuals, placing the onus of tweaking the settings of the robot on the trader.

When considering the price of the robot, remember what it is you are buying and the costs associated with the alternative. The alternative, is spending thousands of dollars and hours educating yourself about the forex market and then, trading by yourself with no guarantee of success.

As you can see above, forex robots are not a sure road to success in the forex market. They have their obvious advantages and disadvantages, but in the end it is the job of the trader to take into consideration these points and question whether it still represents a viable way of getting exposure in the forex market.

It is important to note the reason forex robots have gained so much popularity is because there is a lucrative in selling them. The marketing teams behind robots sell hopes and dreams, which for the most part is what the average retail forex trader desires. They represent an easy solution to tradings biggest problem, making money.

If you take anything from this article, let it be the fact that it is essential to have at the very least a basic understanding of the forex market and trading before engaging in any sort of trading, even through the use of a robot. If a trader is going to use a robot I would suggest doing your homework and finding out the following:  who made the robot, their experience in the markets, years developing robots, support staff if any, do they help you optimise the robot, live trading account results, as much information about the strategy and money management system as possible and how many markets it covers. Once you have this entire information look at the costs. If a company can’t provide you with this information they aren’t worth your time or money!

To find more helpful infomation on Forex trading you can download our free Forex Guide. 

The leverage CFDs offer makes day trading attractive, however, before commencing a day trading strategy you should asses the benefits and downside to using CFDs.

Below are some of the benefits of using CFDs in your day trading strategy:

Low Commission
The commission rates on share CFDs are much less than on traditional shares, this means that you can trade more actively for smaller price movements making CFDs extremely cost effective for day traders.

No financing charges
If you do not hold your CFD position open overnight you will not incur any financing charges

Risk minimisation
You are not exposing yourself to the risk of a stock or share CFD gapping up or down overnight as a result of global market movements.

Free cash flow
As you are only holding your positions for a short time frame you are not locking up you cash, this means that when you see a trading opportunity you will have sufficient funds in your account to place the trade.

Although there are many advantages of using CFDs in your day trading strategy there are also some downsides, these are listed below:

Time
As all of your trading will occur during market hours over short time frames you need to monitor your trading screen on a regular basis, this process can be time consuming.

Decision making
As time is of the essence in day trading it is important to have a very good idea about your trading system as you will have to make quick decisions about your trades.

Capital outlay
Day traders focus on profiting from smaller price movements, therefore in order to make large amount of money, it is necessary to start off with a bigger float or use more leverage.

If you have the time, a good intraday strategy and can afford to start trading with a larger float, then day trading may be the right trading style for you. Before rushing out, opening a CFD account and becoming a day trader you should consider the following tips: 

• Trading CFDs is very much like running your own business, however, as CFDs are leveraged, there is a chance of losing more than your actual deposit, using stop loss orders and having a good money management plan will minimize this risk.

• Before starting to trading, ensure that you understand and stick to your trading strategy. You should start by practicing your trading system in a demo account.

• All traders will have both winning and losing trades. Trading a profitable trading system is the most important factor in making profits overall. It is likely that when you start out trading you will have some loosing trades. However, despite the fact that the number of losing trades is often more than the number of winning trades, the size of the winners are generally considerably larger than the losers. In order to make consistent long term profits, you need to properly back test and understand your trading system.

• Measure the performance of your trading system, you need to look at its profits as a percentage of your initial cash float, the maximum historical drawdown as a percentage of your initial cash float, the steadiness of returns, and the profit-loss ratio combined with the win-loss ratio.

• Choose your CFD provider carefully. Each CFD provider offers a different number of CFDs some of which are short sellable and others not. The trading platform each provider uses determines the type of orders that you can use in your trading strategy. You will need to consider all of these issues as they may have an impact when back testing your trading system.

To find more helpful information about day trading CFDs you can download our free CFD Guide.