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Emotions and CFD Trading

One of the biggest plagues on new and inexperienced traders is the emotion of a trade, and the feeling that you've backed the right position even where indicators are starting to suggest otherwise. Getting emotionally involved in the positions you take is only natural - as humans we tend to think we're right most of the time and our opinions are the most informed and most valid, to the exclusion of the rest of the world, so to distance one's self from this mindset isn't easy. But distance we must, in order to prevent unwarranted losses and a painful reminder that the markets obey no one other than themselves.

Emotional trading can be financial suicide, and managing the psychological side of the trading game is critical to long-term success. By emotional trading, we mean sticking by your guns and refraining from exiting a position you are convinced will do well. Remember that the markets are comprised of ordinary traders like you - it isn't a forum for debate. If the movements of the market aren't rewarding your positions, you need to be prepared to change and go for a different approach. After all, the markets wait for no man, and if you're caught up in a battle of wills, more often than not you will find yourself on the losing side.

Never is this lesson more poignant than with CFD trading, where the interplay of leverage and interest costs make holding on to positions beyond their legitimate viable lifespan even more disastrous. Remember that leverage can weigh against you multiple times beyond your initial trade amount, and the excessive costs of funding an increasingly unviable position can lead to the closure of other profitable positions and the dreaded margin-call. That's a price no trader can afford to pay for psychological satisfaction, and it will be much more painful in the long run to hold on to a position and watch it sink than it would have been to exit with a small loss.

If you take the time to read anything about trading tips and foundational trading knowledge, you'll probably come across advice to this effect. The sole reason for a cliché, in this sphere or any other, is its basis in truth, and there's no point in putting blind faith in a position that otherwise shouldn't merit it.

As hard as it seems, adopting an objective perspective is the only way to ensure a timely, disciplined trading approach - they are not your positions to be held close to your heart, and any trade you execute is only between you and the broker, so don't get defensive if things aren't working out.

The mature, and most profitable, approach to trading is to distance yourself from individual positions and analyse your next moves on the basis of market data alone - if the charts are starting to turn against you, it's up to you to seize the bull by the horns and remedy the situation, perhaps at the expense of your pride but to the advantage of your running trading balance.

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London,
NW11 7TJ,
England & Wales.

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