• Section: Money Guide - Category: Invest Online
• Written by Jesse Witham

This article focuses on the discipline involved in using a technical approach to trading the stockmarket, but the rules shown below could easily be modified and in some cases equally applied to any approach and any type of trading.

What sets many of the world's great traders apart from the crowd is their ability to have a single-minded approach to making money which at its most basic means being disciplined. These guys have shown it is possible to make money in many different markets including stocks, indices, foreign exchange and commodities. What is more they are able to adapt to different background conditions, and for CFD traders this aspect is crucial.

The search for the frustrating holy grail

Many technical traders are constantly searching for the holy grail of systems, and there are clearly some approaches that work better than others, though very few approaches work all the time in all markets.

What is more important is to

have a basic set of rules which cover the emotional aspect of the trading process. One might start with three basic rules of trading: going with the trend, limiting risk by using stops, and careful money management. Not following these simple rules alone condemns many intelligent people to the trading dustbin.

There are of course many times though when things start to go wrong, and during these moments it is human nature to question the underlying methodology or trading system, or tweak the entry/exit points to try and try to 'fix' the problem, or even to abandon the existing system and start again.

Many traders become so frightened of losing again that they will then miss out on some of the best trades that occur purely as a result of the law of averages. They may begin to choose the trades that feel good to them, rather than treating every trade as a production line of potential winners.

On that basis, it is useful to look at a simple list of additional rules which will help you sleep at night as a CFD trader and take away some of the emotional damage that can be caused by stressful conditions in the markets.

Rule 1: Don't make your system too complicated

Modern trading software often has hundreds of built-in technical analysis indicators, plus any combination of custom strategies and expert analyses which can be baffling in their complexity. One technique that you favour might indicate a buy signal, whereas another says sell, and a third indicator might not be conclusive or suggest perhaps adding to positions.

The key is to find a simple methodology that generally works bearing in mind that no one indicator works all the time. Try and keep it simple and stick to a strategy that you feel comfortable with.

Don't use a trend based approach when a share or index is in a trading range (which for many stocks is the majority of the time. Likewise, it is suicidal to use oscillators in trending markets

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