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How to prepare for CFD and Forex trading

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Nick Goold

Step 1. Mental check

Ask yourself if you are ready to trade. Make sure you are calm, positive and motivated, not rushed or frustrated.

Trading is a mental process that manifests itself as behaviour. You must maintain strong mental control so that you remain calm while trading. When you're tense and nervous, your trading decisions are not good. You are more likely to suffer losses, so it's essential to ask yourself this question.

Step 2. Market analysis

First, check how the market has been moving recently. Then, understand why it has moved this way and why it's at the current price. It could be because of events, news, or specific market factors.

Next, identify the support and resistance levels. Support and resistance are where orders are concentrated, with many entry and exit orders waiting to be traded. When these orders do trade, it can trigger a sudden and significant market movement.

What about trend conditions? The best trading strategy depends on knowing the prevailing market conditions: uptrend, downtrend or sideways (range). Blindly using the same method every time, regardless of market conditions, can lead to unprofitable trades.

Is the current trend likely to continue? Check for any signs of a break or trend reversal. Some markets may have had a single trend for a long time, others could have a powerful short-term movement, and some markets can show wild swings.

Step 3. Write down your trading plan.

Write out your strategy and trading plan to identify what trade opportunities you will wait to see before trading. Write it on a separate device or paper to keep it objective, and then you can refer to it easily while trading.

The strategy should also clearly state the numerical conditions for entering and closing the trade. Entry should also be set in only one direction to avoid being swayed by market volatility. For example, long entry because the price has risen, and short entry because the price has fallen.

FX money management

Step 4. Risk management plan

Make a plan using specific figures. How many lots of position size, how many pips for target and stop, and sometimes a limit on the number of trades.

As the market is constantly moving, there is a risk of overtrading. Making too many trades at once can also contribute to higher losses. Also, the larger the loss, the more tempted you may be to increase position size, trying to make up for the lost money, which leads to even more significant losses. Of course, it would be great if you could profit from every trade, but success is not 100% guaranteed. If you set clear limits in your risk management plan, you will be able to trade calmly and safely.

Step 5. Relax

Once trade preparation is complete, relax and allow yourself to act in a calm state of mind. Stay calm, don't rush, and only open a position if you're confident. Trading requires strong mental control.

If you feel stressed, take a break. Trading opportunities can come up at any time. The fear of missing out leads to impatience. Take a break from the charts and return with a calm state of mind - even a 10-minute break can change your outlook and performance!

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