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Will Kraa recently enjoyed a stellar run trading CFDs – pulling in $65,000 in just one week. Kraa, a former teacher and avid trader for the past six years, isn’t new to the sensation of multiplying his money trading CFDs. Back in 2003 when Kraa first tried his hand at the highly leveraged derivative, he turned $10,000 play money into $100,000 in just over three months. So what’s the secret to his success?

Successful traders often share a couple of points in common. Most are extremely committed to the cause, are well educated on trading, learn to protect their downside, and often combine elements of technical and fundamental analysis to fine-tune stock selection. Interestingly, many successful traders also experience the gut-wrenching shock of losing a stack of money at some point.

If handled correctly, big losses early on in a trading career can set the scene for success down the track. “Many traders perform extremely poorly and then they start to realise that they need to do it better,” says Kraa. “People who survive are the ones who tend to do quite well,” he says.

During the tech crash, Kraa lost all of the money from the sale of an investment property on a couple of plummeting stocks. In hindsight, he says his trading strategy was flawed. “You shouldn’t buy a stock in a downtrend,” says Kraa, “and that was what I was doing.”

At the time, Kraa subscribed to a fundamental-analysis software that offered a list of star stocks for keen punters to buy. The system trawled through financial data in search of companies that met particular fundamental analysis criteria. Stocks with low price earnings (P/E) ratios, such as the telco which at the time traded on a P/E of 3, were put up in lights as stocks to watch, says Kraa.

“Every time it went down in price, they’d say it’s better value now and I’d buy more,” he says. “I was relying on the fundamental data that they were supplying and I was probably overweight in some things. It seemed to me a way to print money as it were…it was the old problem of being a bit greedy.”

As it happened the telco eventually went bust and as Kraa puts it: “I came unstuck in a very spectacular fashion.”

Mid-way through 2003, Kraa heard about CFDs and wanted to try his hand. Admittedly, his wife, still reeling from his previous share trading losses, was opposed to the idea. As a compromise, Kraa placed $10,000 into a CFD account as play money, with the idea that if he lost the lot he would write it off. $100,000 richer – after turning $10,000 into $100,000 in just over three months – he banked the cheque. “Since then my wife hasn’t been at all worried about me trading CFDs,” he notes.

Today Kraa doesn’t hold as many CFDs positions, due to a growing unease about a possible market correction. He currently holds a share CFD on Rio Tinto, which he says is “fundamentally cheap at the moment” as well as being in a good uptrend. Its zigzagging price, however, had lost him a couple of dollars a share at the time of writing.

He holds a position on Caltex. “Oil refineries are at a premium these days because no one has been building refineries for a long time in the US and Australia,” he says. “Also Caltex is in a good uptrend,” he notes.

Kraa also likes ROC Oil, which he says is trading on a low P/E, a popular measure to determine whether a company is under-valued by the market, or in other words cheap. Kraa combines fundamental analysis of a stock with technical analysis, such as charting, to determine whether the stock is in an uptrend. Once spotted, he looks for a small retracement in the uptrend before jumping on board.

The instant Kraa purchases a CFD, he determines his stop loss, a protection stgice that automatically triggers a sell order at a pre-determined price.

Rather than inputting a stop loss in his trading platform, Kraa writes it down on paper – preferring to execute the order manually. Does he always obey the stops previously written down? “I think that anyone telling you that they always execute their stops are probably telling you stories,” he says. “I generally do, however, occasionally I let them go on a little bit before cutting the trade.” (As a word of warning, traders without the level-headedness to obey their stop losses should always let the trading system execute the order automatically.)

Letting losses run is the fastest way to coming unstuck on high-risk CFD trading, and Kraa is the first to admit this simple but often overlooked point.

It’s the adoption and successful application of strict trading strategies that separates the wheat from the chaff. Today Kraa gives seminars to up-and-coming traders in Queensland, charging a small entry fee of $5 to cover the cost of the room.

When we spoke to Kraa it was a Friday afternoon. He had between 20 and 25 trades open across shares, CFDs and forex, and he was nursing a $7000 loss incurred that morning. “$7000 is only 1 per cent of my portfolio, so it’s not a big deal,” he says dismissively. “It’s just the cost of doing business.”