thats interesting, I'm still learning about CFD trading, it always gets talked about as highly risky, but I guess if stop losses are set correctly it should be no more risky than anything else, provided the maths is done right
Exactly. It spooks people.
You have to keep your eye on the actual liability you hold, and how/whether you're exposed to it.
Most of the following is tangential. It's how to lose your shirt. I'm bored.
You need to be paranoid about not allowing losses, or they mount up. Usually there isn't such a definite "catalyst" as that so less confidence.
Notice I didn't enter there (dashed line) until the price was moving the right way, top of the blue line. Price had pulled back a little and then gone north again:
Suppose the price twitches down. Do you hold, do you sell?
You never "know" so you have to have a guide. You use artificial ones like the pink line, which is a moving average. You hold unless it "breaks the 50" ( 50 candle period MA). The 9MA is the usual one to use.
That gets to be a wide gap though. I tend to have "paper hands" which means I won't hold through much of a loss. Those with "diamond hands" hodl (hold on for dear life).
EVERY Sell and rebuy introduces a loss in the mis-timing and the spread, unless the price drops a long way, so it's difficult.. You have to have an idea of where you expect the price to go. VOLUME is a clue. If there's a huge up volume, then it's less likely to switch south for long.
Say the price dropped just $5 (that little dip is about $3) and you decided the loss could get too big, and you sold.
And you're using $1000 which gets you $5000 of shares.
You just "crystallized" a loss of 5/150 x $5000 = $167.
Your pot just went from 1000 to 833. That is a big hit.
You could chew through your $1000 in an afternoon, and you're history. If you turned your back and the price dropped far enough, (eg $80), and your pot were 100,000 and you were using the same $1000, you lose 80/150 x 5000 which is $2666 which comes out of your overall pot. By that route you can lose a large amount of money.
If you ONLY have $1000 on your pot, you can only lose the $1000. (In fact less, they shut you down).
That's why, when my pot gets too big, I slice the top off and put it elsewhere. If I were careless or fell asleep (which has happened) I could lose all my pot (which hasn't), but now that's a smaller % of the feeder bank accounts.
An obvious tactic to employ is to ease your way in.. Once you can put your stop loss above the buying price, you can increase the stake gradually. Sod's law says that usually makes the price dive, so you need a good difference to work with.
WHat a lot of us do ( inc me) is over-use stop-losses. At the end of the day you find you made a series of small losses because you were "careful".
You learn to let it go - pick your exit point before entering if you can. Use Take-Profit stops above the price, especially where you see those "levels" I'm on about. Often you can spot a high point. (Btw that grey dashed line is a "level"). MAs llike the pink one behave like levels. There's also a major thing called VWAP.
You can get it wrong and miss out on a bigger gain. That's FOMO (Fear of missing out).
But you learn to ignore that. A profit is always good.
Nobody ever went bankrupt by taking too many profits.
There are many guides you can use to indicate when the price is more than One Std Deviation off the trend, etc. Most of us draw a simple line.
By the way. normal stocks are leveraged 5:1, but indices are leveraged 20:1, etc. That means here (Nasdaq)
If you hit the wrong button and went LONG at A, and your stake is 50k, you bought 50k x 20 worth.
It drops 0.29% so you lose 2900 quite quickly, oops.
I often !scalp" this thing. Notice the NEW long wicks on the candles often just before the direction changes. You get to recognize shapes when they're clear and when they're not. Also notice the net volume trace below. You get ~half a candle notice. (30 seconds, that's all day..)
Like this - classic. You sell when you see the high wick and falling Net vol: You ignore those red down-wicks, because they don't fit the right pattern - can't put it into words easily.
It gets easier after the first few £m....
But you can practice, free.
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