The Psychology of CFD Trading: How to Control Your Emotions

The psychology of CFDs really marks an important part in determining success or failure for a trader. Even though one has the right technical skills and understanding of the market, controlling emotions proves to be the difference. Trading can mean fear, greed, and frustration, among other things, which have a way of muddying judgement and making one make the wrong decisions. The key to success here is to learn to cope with emotions.

Fear probably constitutes one of the emotional major pitfalls a trader has. When the market is wildly volatile, it’s easy for a trader to jump out of a position too soon or avoid a trade altogether. And fear of losing can mean holding onto a losing position in anticipation of and hope that the market will somehow turn around, a behavior that generally results in even bigger losses. Effective traders learn to deal with losses as part of the process and handle them through effective risk management techniques. Traders minimize the psychological pressure that fear creates by determining beforehand the entry points and exit points of a trade, which are usually coupled with the placing of stop-loss orders.

However, greed can also be as devastating. When it comes to profiting with huge amounts of money, it often grows hard to avoid overextending oneself, especially when considering taking much risk. Greed normally leads to impulsive trades or excessive leverage in high markets, which yields significant losses if the market turns on them. When trading with CFD, and since markets move fast, this desire to “chase” gains simply leads to over-trading. The disciplined trader holds firm to a trading plan and does not allow emotions to drive his or her decisions.

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Frustration can also be a factor in these trading errors. A series of losing trades can get frustrating fast and cause the trader to get into a mindset to “revenge trade” with bigger and riskier bets in an attempt to recover losses. This emotional reaction leads to even more losses because it overrules the logical, strategy-based decision-making that successful trading actually requires. Traders who understand this emotional cycle are able to take their breaks when they need them and reassess their strategy to avoid making decisions based on frustration.

The most important psychological trait required for CFD trading would be patience. This is different from traditional investing, where returns are usually achieved in the long term, while most CFD traders depend on short-term movements in the market to generate profits. A patient mind is therefore required to wait for the right opportunity instead of forcing through trades. Lasting positions that will not favor the prevailing overall trends are often entered due to impatience, which leads to losses.

Finally, controlling emotions in CFD trading entails self-awareness and discipline. The trader’s ability to keep a control on feelings such as fear, greed, frustration, and impatience will dictate the quality of decisions made. The best way to navigate the unstructured world of CFD trading is through a clearly defined trading plan and adhering to it despite emotional triggers.