DMA CFD Scalping

DMA CFD day traders regularly search for short term trades to benefit from small market movements on the other hand investors search for medium to long-term value. All traders and investors need a technique even the very best day traders and fund managers. Here we will study some of the principles adopted by the best of them.

A DMA CFD trade can last anything from half an hour for short term intra day scalping or even as long as four to seven days. You must not ever let a short term CFD trade to turn out to be a long term position if it goes against you. You must stick with your original trade parameters. If you do not, your losses will start to accumulate and you run the chance of wiping out your account. If in case you have chosen to open a DMA CFD position that you want to run for a number of days the same rule applies. Do not let it turn out to be an investment that sits on the back burner hoping it will eventually come good.

It is advisable to only hold DMA CFD positions overnight if you are confident in your view, not because you can’t bring yourself to take a loss. This is one of the most typical mistakes made by newbie traders. As the market close approaches and their positions start moving against them, a lot of traders refuse to believe their trades were incorrect. This leads to unwarranted risk taking and generally ruins the next day’s trading.

When the market starts to turn or go into consolidation phase, skilled day traders can take long and short positions a number of times in the course of the trading day. This is only achievable if you're flexible and are not trying to find large price swings, it's essential to also be ready to take small loses and move on to the next trade.

The essence of day trading is flexibility. You should be ready to change with the market. Do not take it on. The moment you've got a strong predetermined view on where a given price of the CFD is heading you will need to put stops in place as this is where you may suffer the biggest losses because when the market moves against you all you want to do is increase the size of your position.

On the slightly longer term DMA CFD trades i.e. one to seven day period, it's essential to be looking for no less than a profit of 1% and ideally around 5% to justify your risk exposure. This does not mean you need to run a 5% stop loss. If at any point the trade looks wrong shut it out and try to find more favorable conditions to re-enter.

Stop loss orders are absolutely vital to your capital survival and your ability to keep day trading. They must be seen as an insurance policy. Stop losses have been vastly under utilised by DMA CFD traders in the past who were forever worried about being stopped only to see their trades go the correct direction later on. This will happen, but you need to be able to deal with the frustration and move on to the next opportunity. If you don’t, you could have adopted an incorrect trading style and will end up at the market’s whim.

Trading v's Investing
The difference between trading and investing is the time horizon and expectations. Investing is usually a long term game that entails committing your funds to the market in search of positive capital growth and/or income. Investors look to put their capital into the markets for a minimum of at least 10 years. Investors shouldn't evaluate their CFD portfolio on a everyday basis as this will only affect their overall view of the market because the inevitable large swings would unnerve them.

Warren Buffett said you shouldn't buy a stock if you're worried it could fall in value by 50 per cent. This is an extreme view, but Buffett is without doubt one of the world’s richest men and most successful investors.

One of the problems with long term investing in CFDs is money management and where to put your stop losses. An intra day shift could go below your perceived level of an acceptable draw down, but it's important to keep in mind that you are investing for the long term. It requires immense patience to be a long-term investor and this style only suits certain people. This why there are numerous fund managers who look after the money of people that do not have the time or the ability to become involved in the financial markets. Long-term investing should be used as part of an overall approach.

Risk
Risk is always present in the markets. Your trading plan must address risk management. Just how much of your wealth do you intend to risk at any given time?

You should always be trying to diminish risk and this can be done through the use of stop loss orders. This is particularly important if you are going to use DMA CFDs with low margin requirements where the leverage is often high. You must also be sure that your portfolio is well diversified and contains DMA CFDs from different industry sectors, this will ensure that you're not solely subjected to the price movement of one CFD.

Article Source: http://gamblingarticlessite.com

John Masterton is a professional CFD trader trading with Australia's largest and most popular CFD provider, IC Markets. John has published a number of articles on CFD education including guides and ebooks which you can download for free.

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