How to prevent overtrading in Singapore’s CFD market?
To prevent overtrading in Singapore’s CFD market, investors need to plan their trades and be aware of trading risks. A detailed strategy is one of the main ways that retail traders in Singapore can minimise the risk of overtrading. An investor with a solid plan will know when to pull out of a trade before going too deep into debt.
The critical element in developing a profitable investing strategy is finding a balance between entering and exiting trades. It is essential for someone looking at starting as an investor to get experience with different strategies and fine-tune them until they become profitable.
Main reasons for overtrading
One of the critical reasons for overtrading CFDs is undoubtedly the mistaken belief that bigger is always better. Many novice traders feel that they need to trade large sums of money to make significant profits. This could not be further from the truth, as even a slight loss can quickly erode any gains made from previous successful trades. Trading beyond one’s means can easily lead to margin calls and liquidating one’s position at an unfavourable price, resulting in substantial losses.
Another reason for overtrading is the human tendency to take action, especially when faced with uncertainty. In the world of trading, this often translates into buying or selling security as soon as possible to get ahead of upcoming market movements. While this may work on a few occasions, the reality is that most often than not, it backfires and leads to significant losses. Studies have shown that over 80% of traders fail to recoup their trading costs.
Key strategies to prevent overtrading
Traders can use a few key strategies to prevent overtrading in Singapore’s CFD market.
Have a clear plan
The first is to have a clear plan and strategy in place before you start trading. This means knowing your limits and not trading more than you can afford to lose. It’s also essential to have a good understanding of the markets and the products you’re trading, as well as the risks involved.
A second way investors can reduce their risk of overtrading is by being disciplined with their money management. Money management techniques can ensure successful trading by limiting the potential damage that a risky decision could do to an account.
Use stop losses
Another critical strategy is to use stop losses. A stop loss is a tool that automatically closes out a losing trade once it reaches a certain pre-determined level. This helps to limit your losses and protect your capital. It’s also important to use limit orders instead of market orders when possible. Limit orders give you more control over the price you enter or exit a trade.
Manage your bankroll
It’s also essential to manage your bankroll effectively and ensure you don’t expose yourself to too much risk, as this can lead to overtrading. Managing your bankroll means deciding how much of your trading capital you want to use for each trade and then sticking to that amount, no matter what happens in the market.
It’s also good practice not to trade with money you need for other purposes like bills or daily expenses – these are called ‘necessities’. If profits go down, think about switching products or try cutting back on your trading if possible. For example, one way is to reduce the number of lots traded during high volatility periods where prices are likely to move more.
Overtrading can be a very costly mistake, so it’s essential to use the appropriate strategies to prevent it from happening. By following the tips mentioned in this article, you can help protect yourself from overtrading and maximise your chances of success in the Singapore CFD market. If you are a new investor and want to trade with a contract for difference we recommend using a reputable online broker from Saxo Bank.