Skip to content

CFD trading strategies

Raising awareness -- and funds -- for breast cancer patients. With this strategy, what you are doing is short selling a CFD for a similar number of shares to protect yourself from making a loss. IB Boast a huge market share of global trading. This is where the TradingLevels comes into its own. Here, you may see your trading positions remaining open for a week, or perhaps ten days at the outside, as the trend plays out. When the price reaches your key level, you buy or sell whichever is appropriate to the current, prevailing trend. The general rules of this strategy are that if the indicator line rises above 70, then it is necessary to open deals for a fall.

CFD Trading Strategies to Improve your Profits. So you’ve got some money to play with, you’ve read up on the basics, and you have a CFD trading account. Time to get started right, with the right CFD Trading Strategies? Not so fast. Randomly making trades isn’t going to get you very far. What you need is a coherent trading strategy.

Leaders in Trading Technologies and Investor Education

The trades happen automatically from within the confines of the rules you write. Discretionary trades, however — now these are interesting, dynamic, and most importantly, active. They revolve around the idea that you, the trader, armed with a variety of analytic tools, are uniquely positioned to spot emerging trends and act on them intelligently to conduct the business of your business. Your goal in using these tools is to give you a better perspective about future price movements, and trade accordingly.

A fairly common trading strategy, this one sees you identifying a key price level for a given stock. When the price reaches your key level, you buy or sell whichever is appropriate to the current, prevailing trend. You absolutely need a clear understanding of the trend and its direction in order to be successful here. This is essentially a market timing strategy. If a stock has seen its price trending lower, then you pick a point you believe to be at or near the end of that trend, and buy in anticipation of a move in the opposite direction.

You can do the same thing in reverse by short selling a stock that has been increasing in price, in anticipation of a sudden change in price direction.

Wave Theory and similar analytic tools can help you identify when these shifts are most likely to occur. Scalping is the most active of all the trading strategies. This could see you making a dozen, twenty, or even more trades per day as you identify small windows of opportunity. Not as a steady, straight line, but in fits and starts, represented by a jagged, saw-toothed pattern. Armed with this information, you can make money in both directions — buying at the bottom of a dip in price, and selling just before the price peaks and is set to drop again.

If you want to excel at this type of trading, then Wave Theory will be your best friend. Here, you may see your trading positions remaining open for a week, or perhaps ten days at the outside, as the trend plays out. A trader following the News Playing approach to trading would have immediately shorted the stock.

We also ignored commissions and spreads for clarity. But the above does illustrate the relative differences in the two methods of investing. CFD trading with oil, bitcoin, and forex are all popular options, for example. Despite the numerous benefits, there remain a couple of downsides to CFDs you should be aware of.

One of the selling points of trading with CFDs is how straightforward it is to get going. There are thousands of individual markets to choose from, including currencies, commodities, plus interest rates and bonds. Try and opt for a market you have a good understanding of. This will help you react to market developments.

Most online platforms and apps have a search function that makes this process quick and hassle-free. If you buy you go long. If you sell you go short. Bring up the trading ticket on your platform and you will be able to see the current price. The first price will be the bid sell price. The second price will be the offer buy price. The price of your CFD is based on the price of the underlying instrument.

If you have a reason to believe the market will increase, you should buy. If you believe it will decline you should sell. You now need to select the size of CFDs you want to trade. With a CFD, you control the size of your investment. So although the price of the underlying asset will vary, you decide how much to invest.

Brokers will however, have minimum margin requirements — or more simply, a minimum amount that is required in order for the trade to be opened. This will vary asset by asset. It will always be made clear however, as will the total value or your exposure of the trade.

Volatile assets such as cryptocurrency normally have higher margin requirements. This will help you secure profits and limit any losses. They tie in with your risk management strategy. Once you have defined your risk tolerance you can place a stop loss to automatically close a trade once the market hits a pre-determined level. This will help you minimise losses and keep your accounts in the black — leaving you to fight another day on subsequent trades.

A limit order will instruct your platform to close a trade at a price that is better than the current market level. If you opt for a trading bot they will use pre-programmed instructions like these to enter and exit trades in line with your trading plan.

These are perfect for closing trades near resistance levels, without having to constantly monitor all positions. You can view the market price in real time and you can add or close new trades. This can be done on most online platforms or through apps. You will be able to see your profit or loss almost instantly in your account balance. Choosing the right market is one hurdle, but without an effective strategy, your profits will be few and far between. You need to find a strategy that compliments your trading style.

That means it plays to your strengths, such as technical analysis. There are several strategies one can use to open CFD trades and two of the most popular concern technical analysis and trading the news. Of course, you can simply use CFDs as geared-up directional plays but in practice there is more in it than that. For instance, technical analysis plays a big part in short term trading and has been extensively written up elsewhere.

If you are considering entering into a CFD trade it is important to look at the technical analysis of the trade. The use of technical analysis and technical indicators makes it possible to better your chances of calling the short term stock price movements that, through the use of the CFD leverage, can create some considerable gains.

The breaking of key support and resistance levels are closely followed by traders, while other factors such as trend lines, moment indicators, and moving averages can also be important. Exciting though some of the above strategies may seem, it is important to be aware that they are far from risk-less. No trading strategy will work all the time so it is crucial to plan each CFD position in advance to increase your chances of success.

Anticipating short-term fluctuations in share prices can be rewarding but it must be borne in mind that a stock can be subject to many other influences, including systemic market risk and unexpected news. Despite the benefits of technical analysis, fundamental factors like trading updates cannot be disregarded as these will heavily effect a company's share price.

Other pertinent variables that might affect the market you want to trade include weather forecasts, inventory data, forex interest rates, unemployment figures and agricultural reports; all these are very relevant for both long and short-term traders. Establishing a trading plan that covers entry and exit criteria, sound risk and money management is essential for your trading success.

Open an account now

CFDs and News Trading. Good traders carry out research before they do any transactions or trades. One of the most reliable CFD day trading strategies is to pay attention to the news, especially on business websites or in the business section of a newspaper. It’s easy to find major events using an economic calendar. CFD trading strategies, for the most part, mirror those used by traditional stock investors but there are some subtle advantages that allow for additional flexibility and the potential for higher levels of profitability. CFD trading offers a different approach to trading, because you can sell short. The gains and losses will depend on how accurately you predict the movements, the size of your lot (‘position’) and how significant the market movement actually is. CFD trading is fairly similar to the Forex market.