CFD trading typically involves backing your judgement whether a financial product is likely to appreciate or go down in value. CFDs are traded on margin, meaning that, thanks to the increased leverage available profits and so too losses can be substantial.

Due to the nature of CFDs most trading takes place online on sophisticated trading platforms leaving no need for a broker.

While CFD trading is a thoroughly modern way of taking a position on the financial markets at a fraction of the cost of more traditional methods, the principles that underline both the behaviour of the markets and the trading strategies needed to harness them remain pretty much the same.

Here are the three steps to successful CFD trading.

The trend is your friend.
Experienced traders will shout ‘cliché’ at this point but like all clichés there’s always a kernel of truth in there. In short, markets trend either up, down or sideways.

For sustained success and greater peace of mind the majority of traders prefer to go with – not against – the trend; trying to execute a quick trade against a short-lived trend can sometimes be a bit like trying to hail a cab at rush hour and turning up late for that meeting as opposed to booking one in advance and arriving calm, collected and on time.

Run with your profits.
Knowing when to take profits and when to let them run really takes years of experience. With CFD trading a good way of safe guarding against a downturn is by setting a trailing stop-loss. When a trade moves in the direction you hoped always update your trailing stop-loss to lock in any profit. It’s always good to set a target for your profit on any trade.

Chart analysis and pattern recognition tools can help you spot when a trend might be reversing.

Cut your losses.
Following a winning trade or two your confidence is high. You’ve done the research, spotted and identified the trend and all the signs are there, just as they were before when you made a profit last time. You place the trade, but before you know it the trend is reversing and you begin to lose money.

At this point even seasoned traders are likely to hang on in there waiting for the turnaround, thinking–knowing that their judgement is correct. It’s not spineless to pull out of a losing position, it’s just smart. But if you do stay in, don’t be surprised to find yourself following the losing trade right to the bottom.

Just as with profits it’s a good idea to set a maximum loss on any trade you place.

For more information about how to become a better CFD trader visit www.igmarkets.co.uk.

Always remember that trading CFDs can result in losses as well as profits, so make sure you understand the risks involved.