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Confirmation bias is the habit of only looking for information that supports your beliefs. If you anticipate the price of BHP Billiton (BHP) is going to rise, for example, you will only really take in news and data that reinforce your belief. Traders who pursue confirmation of their beliefs tend to miss warning signs that...

Overconfidence Bias Overconfidence bias is an inflated belief in your skills as a trader. Any traders who finds themselves thinking that they know the business inside-out and that they have nothing more to learn, may well suffer from an overconfidence bias. Overconfident traders tend to get themselves into trouble by trading too frequently or by...

When trading you complete not only against other traders, but against yourself. Traders can be emotional and irrational and while such emotions and instincts can provide trading successes, they are more likely to hinder your trading unless you learn to control them. This is why understanding trading psychology is important. It is not possible for...

Hedging does not necessarily need you to be in two offset positions simultaneously. You can also hedge your overall account risk by diversifying your investments. Whether you expect shares to rise or fall, you can insure against the price movements by buying or selling a broad range of CFDs. The easiest way to hedge by...

Another popular hedging strategy involves buying a company’s CFD and simultaneously selling a rival company’s CFD. This is called pairs trading because you trade a pair of CFDs. The shares of companies in the same industry tend to move in the same direction so, if the industry performs well, most of the shares of the...

This popular strategy uses a CFD hedge to protect a single share position. Imagine you currently hold 10,000 XYZ Bank shares. It is October 2008 and the bank is experiencing problems due to the current credit crunch stemming from difficulties in the U.S. housing market – creating what you believe is only a short-term weakness,...

Hedging is the action of taking an equal but opposite position usually through a derivative, such as a CFD in order to mitigate or reduce the risk of an existing open position. A hedge will create neutral market exposure so any price changes will be offset by opposing positions. A short hedge using a CFD...

You need to know how to determine trade size to prevent unnecessary exposure to risk. Trade size is the volume of CFDs you buy or sell in any individual transaction. Once you know how much you are willing to risk, you need to know how to set up your trades so that you do not...

Know what you are willing to risk before you enter a trade is the basic tenet of living to trade another day. If you do not risk too high a proportion of your capital in any one trade, or in a handful of trades, then you will be able to continue trading whatever the outcome...

The number one and most important rule of trading is – preserve your capital. Without capital you are unable to trade. As Jesse Livermore said “A trader without money is like a shop owner without inventory”. Preservation of your trading capital is perhaps the most important goal. Regardless of whether you make bad decisions during...