Making money with forex & CFD trading. In the era of online trading millions of investors all over the world are working on this. However, for many investors it is difficult to become or stay profitable. Besides the lack of sufficient trading knowledge, this is mainly because of human factors.
At Major Markets Trading we are very familiar with the practice of trading. In the past 15 years we have spoken to literally thousands of retail investors. We have become experts in the psychology behind trading and making trading decisions. In our articles we pay a lot of attention to having a positive open trading mindset, discipline, avoiding pitfalls, risk management and the do’s and don’ts of trading.
In this article we will discuss the question whether it is possible to make lasting profits in the long term by trading in forex & CFDs. In addition, we will of course also give you a number of tips that can help you improve your trading results.
Why is trading forex & CFDs so difficult?
The lack of trading knowledge and a wrong approach to trading can make successful trading in forex and CFD’s very difficult.
Many investors underestimate the complexity of trading financial products. However, knowledge and experience are essential for achieving success. Think for example of your own profession. The knowledge and experience that you have built up over the years have certainly enabled you to carry out your work more successfully. It is therefore important to understand that there are no guarantees in trading. There are also no different divisions in which one can play, such as in football for example. Everyone trades in the same market. These markets have their own characteristics and complexities.
We also see that many investors have a wrong approach to trading. Fortunately there is a lot to learn about trading. Online there is a huge amount of information available and there are thousands of books about online trading, technical analysis, trading strategies and the like. However, this information is often rather pragmatic in nature, without considering the personality of the investor. When trading manually, a trading strategy is usually the most successful, when it is tailored to the personality and risk appetite of the investor. After all, every investor is different.
Where can it go wrong?
Trading without a plan
If you fail to plan, you are planning to fail…
Trading without a plan is like getting into a car without knowing where you’re going. A trading plan contains all the rules and methods that define your trading. It is especially important to write down as much as possible. Topics that are addressed in a good trading plan are: financial goals, money management, trade and risk management, checklists for opening and closing positions, markets or products to be traded, trade sizes, desired risk-reward ratios, evaluation of available knowledge, time available to trade, evaluation of personality, determination of stop-loss and take profit levels, determination of available amount for trading and the registration of all trading activities.
A good trading plan provides guidance and enables you to make better decisions. In addition, you can use the trading plan to further improve future results.
It is important not to confuse a trading plan with a trading strategy. For example, a trading strategy determines when you open a position and when you close a position again.
Focus on profits
Experienced traders control risks, inexperienced traders hunt for profits (Alan Farley)
Many traders only think of profits. As a result, they often set unrealistic goals. In trading unfortunately it’s not possible to only make a profit with a few quick trades. Money is the by-product of a successful trade. So the focus should be on trading and not on chasing profits.
Traders who only think about profits, will often see the balance on their account quickly decrease. By only dealing with potential profits, traders often see opportunities in the market which are not there at all. However, the trader sees the possibilities because he wants them to be there. This in turn leads to the placing of too many and too large transactions, with all the consequences that entails.
Trading without sufficient knowledge
It’s amazing to see how many people are trading forex and CFDs without much knowledge. In fact, there are many traders who find it difficult to take advice from brokers at all after opening a trading account. There can be no doubt that successful trading in financial products requires a certain amount of knowledge and experience. This will be no different in your own profession or work, for example.
In addition to a lack of trading knowledge, there is often also a lack of knowledge about the market or markets in which trading takes place. Each market has its own specific characteristics. Within each market, a wide range of products are available. Within the currency market, for example, there is a wide range of currency pairs that can be traded.
Online brokers of course also see that many novice traders make the same mistakes over and over again. Partly as a result of this, the oversight of suppliers of leveraged products has been tightened in recent years. Fortunately we are seeing more and more brokers offering their own educational platform and making a lot of effort to give webinars and seminars about online trading.
Trading too many markets
The most successful traders only trade in one or a few products or markets. This also makes sense. Successful trading requires knowledge of the market and the continuous updating of all developments within the market concerned. The more markets that need to be followed, the more difficult it becomes to do this successfully. Yet there are still many traders who trade many different markets, without thinking about whether all relevant information is present. As we have already indicated, it is also questionable whether these markets can be traded in the same way.
Many traders trade alone. This doesn’t have to be a problem in itself. Many traders like to be able to concentrate on trading, without distractions or disturbing elements. It often happens that traders don’t create or use the possibility to ask questions, as a result of which they don’t get feedback on their own actions. As a result of this many traders are not able to structurally improve their results.
Trading without the right tools
An online trader’s tool consists of hardware, software and a good workplace. Most traders use a desktop or laptop computer. Trading “on the go”, via a smartphone, is less suitable. Especially the use of analysis tools via a smartphone is still limited. To place a quick trade, a smartphone is of course easy to use.
The use of a good quality trading platform is essential. Stability and ease of use are important here. The larger online brokers often have their own web-based trading platform available. In addition, many brokers offer the possibility to trade via MetaTrader. MetaTrader is a downloadable trading platform that can be linked to many brokers. In the next article you will find 5 points to pay attention to when choosing a good broker.
A good workplace is also one of the tools of a successful trader. It is important that you can concentrate on your trading, without distractions or disturbing elements. Which environment is suitable for this, you decide for yourself. A condition is that your workplace has a fast and stable internet connection.
Successful trading is not easy, but certainly not impossible. However, we see that many traders have unrealistic expectations regarding their trading activities. There are a few reasons for this.
Many traders and day traders trade in so-called leveraged products. By using the leverage effect, traders with small amounts of money can take large positions in the market. These positions can lead to large profits or large losses per transaction. Some traders expect to be able to make substantial profits with a few trades.
Unrealistic expectations are also raised by third parties. On the internet many traders, analysts, gurus and other parties can be found who appear to have huge profits. Think of all the messages you might see on Twitter, Facebook and other websites. It is especially important to use your common sense.
Overconfidence can also lead to unrealistic expectations. Winning is of course good and makes you feel good and confident about your trading. However, it is important not to take higher risks as a result.
Development of negative trading habits
Many beginning traders are developing negative trading habits. The main cause of this is overtrading. For example, it can happen that you make a profit with a comparatively large trade. In this case overtrading has worked well for you. It is then difficult to start trading “according to the rules” again. The negative trading habit is reinforced and you run the risk of putting the balance on your account at risk.
A good trading plan can help you to stay disciplined and trade according to a fixed routine. In this way, you prevent random trading.
Poor risk management
Good risk management is one of the most important determining factors in trading. Still we see a lot of traders making mistakes here. Traders often forget to think about an exit strategy per trade. Before you open a position, you should have already thought about when you will close a position. Of course it is important to enter a stop-loss in this case. One transaction with too much risk can wipe out a large part or all of your account balance.
Traders also often forget to trade with a positive risk/reward ratio. In short, you need to ensure that the amount of risk you take is smaller than the potential reward.
How can we make long-term profits with forex and CFD trading?
In order to be able to determine how we can make a profit in the long term, we first need to have a good understanding of what can go wrong. We have discussed this in the text above. Now it’s time to look at methods which can help us to become and stay profitable.
First of all it is important to understand that when trading forex and CFD’s you are confronted with both profit and loss. This is just the reality of trading and something to think about. So it is not possible to close every trade with a profit. Forex and CFD trading is therefore difficult for people who are struggling with taking losses. Nevertheless many experienced traders are profitable, while less than 40 percent of the number of trades they place is closed with a profit. The return of the profitable transactions is then sufficient to make up for the loss and to achieve a positive return on the account.
In life, it is sometimes wise to adjust expectations. This is no different in trading. It is best to write down your expectations of trading in your trading plan. Try to ask yourself how realistic your expectations are, looking at your personality, finances and trading experience. Adjusting your expectations will eventually lead to more success, as these are better suited to your person. The result will therefore fit better with your definition of success. After all, this is different for each person.
However, it is important that you maintain confidence in yourself and the way you trade. After all, trading successfully takes time and patience.
Focus on only one or a few markets
Your trading results will improve when you focus on only one or a few markets. As we have indicated before, each market has its own characteristics. In addition to knowing the market you are trading in, you should also be aware of any factors that may affect this market, and therefore its price. The internet is the most widely used news source. However, the supply of news and information is massive. It goes without saying that only one or a few markets are easier to follow than a large number of different markets.
The market in which you trade is, of course, up to you. However, it is advisable to pay attention to a number of points when choosing a market. Initially, you can look at your own interests, and which market could best suit them. If you are interested in the German economy and the car industry, you could think of the German main index, the DAX30. The same goes for your knowledge and experience. Perhaps you already have knowledge of a certain market, which you can use for trading.
Ask yourself when you prefer to trade and how much time you actually have to trade. If you like to trade during the day, it is wise to opt for a market that is then open. Indices and the shares listed on them are normally only tradable during the opening hours of the relevant exchange. There are also markets that can be traded continuously, such as the forex market. This market is normally open from Sunday evening 23.00 hrs, until Friday evening 23.00 hrs. Make sure you have enough time to analyze your market or trade before you place trades.
Make sure that the market you are trading in is appropriate for the way you are trading and that you feel comfortable with it. You can look at your trading frequency, i.e. how often you actually place a trade. You can also look at the time frames on which you trade. Many traders are involved in day trading, in which a position is normally opened and closed within the same trading session. It is of course also possible to trade on longer time frames, such as a daily chart.
Focus on risk management
We now know that it is not possible to close every trade with a profit. This makes good risk management even more important. In the long run, risk management will even make the difference between making a profit or a loss with trading. In addition to knowledge about risk management, discipline and trading experience will be decisive for success. In the following article you can read more about risk management in trading.
Focus on learning
The only way to move forward in trading is by continuing to learn. Instead of profit, try to focus on learning trading strategies. In this way you will find out which trading tools are available, and which of them best suit your own strategy.
You should be constantly learning about the behavior of markets and how they work. There will always be new markets available, and ways to trade them. Think for example of the market of cryptocurrencies. In this market, more and more products are becoming available for retail investors.
Make sure that you continue to test and improve. By continuing to test strategies and trading ideas, you will find out what works best for you. If you have the opportunity, it is advisable to always backtest strategies.
Use a demo account
Before you start trading, you need to know and understand the risks involved. New trading systems or trading strategies can easily be tested in a risk-free trading environment, by using a demo account.
Risk-free trading with Admiral Markets
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Seek feedback from other traders
Traders are still seeking too little feedback from their broker or from other traders. This ensures that many traders keep repeating mistakes and are less able to achieve better trading results. At the same time the possibilities to get feedback are widely available.
Good brokers nowadays pay a lot of attention to their clients. You may have noticed that you receive regular news about the different markets and trading opportunities. In addition, many brokers also provide their customers with market commentary and information about trading strategies, during so-called webinars. This often involves one-way traffic, while a certain interaction is required to obtain feedback. This often means that a trader has to take the initiative himself.
Good brokers can be reached by phone, email and chat. Brokers have a lot of expertise about everything that has to do with trading. Since many traders are confronted with the same issues, employees of brokers are often well able to offer valuable feedback. It is therefore wise to make full use of this. There are also many brokers who regularly organize seminars or are present at trade fairs. These events are also ideal for obtaining feedback.
A second possibility to gather valuable feedback is through other traders. It goes without saying that other traders have to deal with the same possible problems and challenges. The internet offers a solution for this. You can look for online forums about trading. Twitter offers an even more direct source of information and exchange of thoughts. Nowadays there are also websites which are especially meant for exchanging trading ideas. Of course you can also look for a local investment club.
Trade only when you need to trade
Many beginning traders are impatient and would like to enter the market as soon as possible. Even the more experienced traders we often see trading, while in fact the market doesn’t give any interesting signals at all. Although of course this is only human, this way of trading often results in traders not being able to structurally gain profit in the long run. This is also logical, in case of frequent trading in an unclear direction.
The good news is that you don’t have to trade at all. You decide for yourself when you want to trade and in which market you want to do so. If you do not see a possibility for an interesting trade in a certain trading session, just wait until the next possibility presents itself. You can therefore wait as long as you want.
The above also means that there is enough time and space to look for interesting trading opportunities. Based on your trading plan and the trading strategy defined in it, you will look for the right trades. If you strictly follow your strategy, you will also make sure that you do not place any trades when this is not necessary. Make sure that the trade is not too large and is in line with your risk management, even if the setup of the trade still seems so attractive.
Think long term
If you want to stay profitable in the long run with forex and CFD trading, you also need to think in the long run. Successful trading is an ongoing process in which the short term is unimportant. The average of your long-term results will determine your success.
Take your time and try to stick strictly to your trading plan. You will see that your results are structurally improving.
In this article we’ve been looking for an answer to the question whether it’s possible to make lasting profits by trading forex and CFDs. We have determined that trading is a qualified activity. We have also seen that there are many opportunities to improve trading results if we adhere to our principles and are constantly looking to further develop our skills.
Ask yourself why you are trading. Do you trade mainly because you like it, or are you seriously planning to get part of your income from trading? In any case, make sure that you are trading for the right reasons.
We also conclude that it is important to tailor your trading to your personality. The role of psychology in trading is much greater than you might think. It is important to realise that emotional factors play an important role in trading. In the following article you can read more about the role of psychology in trading.
Fortunately you can do a lot yourself to achieve better trading results. Good risk management and improving your trading skills are central to this. It is also important to respect the leverage when trading forex and CFDs. You need to maximize the benefits of leverage, while covering the negative effects as well as possible.
At Major Markets Trading, we deal with trading on a daily basis. We are very enthusiastic about the opportunities offered by financial markets and are constantly working on how to trade successfully. Based on our work experience at brokers, we have come to the conclusion that trading requires a lot of time and attention. With this in mind, we started automatic trading a few years ago, also known as auto-trading. This led to the creation of the Major Markets Trading forex automatic trading system.
The Major Markets Trading forex algorithm is a fully automatic trading system which buys and sells positions on a number of currency pairs, in the form of CFDs (contracts for difference). The purpose of the Major Markets Trading forex trading system is to provide a profitable automatic trading system in the form of a forex algorithm. The trading system is very suitable for forex traders who don’t have much time to trade, don’t have programming knowledge and want to remove emotions from trading.
Click here for more information about the Major Markets Trading forex automatic trading system.
Of course we also like to trade manually. We are seeing interesting opportunities for this every day.