Cfd trading strategies cfds

Short Term Trading Strategies with CFDs.

If you are looking for an efficient way to profit from the stock market, contracts for difference (CFDs) offer you a number of advantages over stock ownership. They can be used with conventional strategies and will magnify your gains. This is primarily because of the gearing of your money that is available - typically you will only need to have 10% or less of the value that you are trading, and the rest of the money is 'on margin' - effectively borrowed. In addition, in countries where stamp duty is applicable to stock ownership, this will be saved trading CFDs as there is no transfer of ownership.

CFDs are Particularly Suited for Short-Term Trading.

In particular contracts for difference are well suitable for short-term trading, and by this I mean trades held for periods of just a couple of minutes up to a few weeks. This is not only because they are margin products (which magnifies small share price movements) but also due to the stamp duty exemption in the UK and Ireland which allows for an immediate saving of 0.5% compared to when buying the underlying securities. This makes CFDs a very cost-effective way to trade shares especially considering that CFD brokers will only typically charge 0.1% each way meaning that a trader could pay a total of 0.2% to open and close the trade.

'As a short-term trader I look to enter a stock and take a small profit before I sell it and I might do that with the same stock several times a day.' 'I prefer high volume and plenty of liquidity. I like to know that when I buy a share I can sell it just as easily. I also look for positive momentum and positive announcements associated with the company, which might drive the price up.' 'In practice 70% of my time is spent reading and researching shares with the most critical rule being to stay disciplined' - Angelo Carapella, short-term trader with 20 years' experience in the financial markets.

If you are looking to trade short-term (as opposed to long-term), then it makes sense to focus on just a few markets the movements of which you fully understand. With few changes you can develop short term trading strategies for CFDs based on stock trading strategies. These would include trading with a trend as soon as you can identify it, and allowing the trend to progress until it showed signs of slowing. With the leverage from CFDs, it is quite possible to double your money using this technique, which would be exceptional if you chose to use shares alone.

The one difference that you may hear mentioned between using CFDs or shares for your trading is the daily interest charged to hold a CFD position, if you keep it overnight or longer. The interest is usually charged at a published rate plus a couple of points, and if you are interested in short term trading, it will not amount to much over the holding period. You can go short with CFDs as easily as long, and if you do you will receive interest. Again, not a significant amount, but a benefit.

Use CFDs Responsibly.

Of course, with large leverage comes responsibility to make sure that you do not suffer losses that you cannot bear. Contracts for difference can cause you to get a 'margin call' if, when they are marked to market, the value of your holding has fallen. This means that you may have to send your CFD dealer more money just to maintain your position, otherwise he may close it at a loss for you. It helps if you only plan to trade with half of the money in your account, as this leaves the remainder as a buffer against getting such a call.

CFDs Strategies.

Trading Styles: CFDs.

Trading Strategies: CFDs.

Trading Using Indicators.

Trading Economic Numbers: CFDs.

CFDs Strategies and Trading Styles.

This section deals with trading strategies for CFDs. 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.

Establishing a trading plan that covers entry and exit criteria, sound risk and money management is essential for your trading success. Key here is risk management. Spend time trialing the various systems available to ensure you are using the most appropriate systems for your trading style.

The table below demonstrates a few CFD strategies that could be utilised .

What Makes a Good CFD Trading System?

Using trading strategies helps you to boost your returns while reducing your risk. A trading system is a systematic way to trade that, if followed, should result in a steady profit. While you may find the odd trader who claims to follow no particular method, if they have been trading for long and not lost all their money, they are following a system but just haven't formalized it.

A good system is a set of rules for trading, which may or may not have room for the trader's discretion -- some systems are rigidly defined, and others have some subjectivity. However the actual trades are selected, there are four things that the system needs to do -:

Identify trades with a good reward to risk ratio. Have a system to find a good entry point. Identify the exit conditions, whether for a winning trade or to cut losses. Provide rational position sizing to benefit from a win without major effect with a loss.

In any trading, but particularly when using a leveraged product like contracts for difference, it's important to identify before placing a trade exactly how much you will lose if it turns against you. As long as the parameters of the trade are clear, this is an easy calculation. It's just a combination of your initial stoploss and the size of the trade. Usually the system will require you to work backwards from the maximum loss you want to sustain on your account, perhaps 2%, together with consideration of the chart and where the stop loss is placed.

A good trading system will look for an entry signal which implies that the position will immediately be headed toward profit. Often, this could be as simple as seeing a strong price move and acting to place the trade in that direction while the move is continuing. The trading system should be clear on the conditions for placing the initial trade.

Whether you place it on the market or not, a good trading system will always tell you where the initial stoploss must be, and if this is based on a value, a percentage, or on perceived support levels will depend on the plan. The plan should also give some indication of the possible reward, as this needs to be at least two or three times the possible loss in order for the trade to be worthwhile.

Finally, the system must provide a reasonable method of exiting the trade if it is in profit, and not allow the price to swing back down and lose the gains that were made. There are several methods of doing this too. If the trading system is based on chart levels, there may be a target from these or from consideration of the Fibonacci ratios applied to them. Sometimes the profitable exit is as easy as placing a trailing stop which closes the trade if there is a minor retracement.

A good CFD trading system will take all of these factors into account, as each of them is important for a successful and long lasting trading career.

Top 7 CFD Trading Tips in 2017.

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CFD Trading Tips for CFD Traders.

Bonus: 3 Extra CFD Tips included and updated for 2017.

No matter if you are looking for CFD trading tips to apply to a live account or demo account, you will find our best trading ideas and strategies to help you become a better trader over time (not overnight).

There are no get rich quick tips here, so if you are looking for the next Holy Grail, then you have come to the wrong place.

If you are looking to build a solid trading foundation you can use to trade CFDs, forex trading, the Dow Jones or any of the global markets, then you are in the right place.

No hype. Just straightforward and efficient trading tools and strategies you can apply to day trade, swing trade or short sell the financial markets.

But before we get into the top 7 CFD trading tips, let’s take a look at what are CFDs.

What is CFD Trading?

If you are new to trading, you may be wondering ‘What is CFD trading?’.

Put simply, Contracts for Difference CFDs trading is the ability to speculate (buy or sell) on the rise and fall of financial products.

With CFD trading you can trade share CFDs, Forex, Indices and Commodities.

Many CFD brokers allow you to access more than 10,000 trading instruments around the globe.

With CFD Trading, you can trade similar products you normally would on the share market, but you only need a small amount of margin up front. Your CFD provider allows you to trade on margin using their trading platform to speculate on market moves for potential profit.

Now you have the CFD basics covered, let’s get into the top 7 CFD trading tips.

1. Preserve Precious Capital – PPC.

This fantastic money management/capital preservation idea was unashamedly taken from Marcel Link’s brilliant trading book titled “High Probability Trading“.

Marcel goes on to explain in his book how in his early days a fellow trader saw him over trading and suggested Marcel concentrate on preserving precious capital.

Forget about making money; just try as hard as possible not to lose any. Every dollar you have is precious, and fight as hard as possible to keep it in your pocket and out of someone else’s.

What is the point of having the best CFD trading system in the world if you have lost all your money? Therefore your goal will always be to keep your losses small.

2. Ensure you have an edge.

It goes without saying, you need a positive expectancy trading system or an edge in the markets. There is a saying at poker tables along the lines of “if you look around the table and you can’t see who the sucker is, it’s you!”

In trading, the professionals are dedicated to stripping money off you. You must be diligent, disciplined and confident about your edge in the markets. Work hard and stay focused on keeping your edge and continually improve your financial situation.

What are some examples of a trading edge?

Your money management plan The ability to time your entry technique to perfection Your ability to remain patient and wait for opportunities You may be great at NOT making mistakes It could be your ability to trade the news and react quickly during news events like nonfarm payrolls Your skill could be adding to winning positions and maximising a profitable trade.

The list above is just a starting point. Don’t underestimate your skill sets. Work hard to improve your strengths and minimise your weaknesses.

3. Control your CFD leverage.

CFD leverage is so powerful when things are going well. And it can be so easy just to keep increasing position sizes as you are winning. But the inevitable loss is always lurking around the corner.

You have probably heard of a trader who managed to turn a small account into a much larger account, only to then give all the winnings back.

You don’t need the emotional roller coaster ride or the margin calls. Be aware of the risks involved with every CFD position you take.

Start small with your CFD leverage and keep your total exposure low relative to your capital base. If you are starting out, trade from zero leverage up to a maximum of 3 times your account size.

If you are a day trader trading forex on the short term and you are getting started, then keep your leverage very small.

4. Use CFD stops religiously.

Stop losses make sense.

They help minimise your loss which helps you with CFD Tip number 1 – preserve precious capital.

Every trade you enter should have a clearly defined CFD stop assigned to it. Ideally, you should have identified your stops outside of live trading with prices moving.

You see it’s very easy to get emotionally charged when you are in a falling market. Not only that, but it is more than possible to believe your stock is going to head in your direction miraculously.

It probably isn’t, and HOPE is not going to help. Define a CFD Stop outside of market hours and stick to it. Many stop loss trading examples rely on technical analysis to determine their sell prices. Fundamental analysis isn’t used as much with short term traders’ stop loss strategies.

5. Establish clearly defined, realistic trading goals.

“All I want to do is make a measly $1,000 a week trading with my $10,000. That’s achievable isn’t it?”

Alongside your 1st rule, preserving precious capital, your 1st major goal with your CFD trading account is to keep your trading account intact and stay in the game for the 1st year.

Survival is paramount if you are going to make a decent living buying and selling any financial instrument.

A mentor of mine, Jim Rohn, used to say…

If you don’t know where you are going, well you will get there.

See the truth is, you will end up somewhere but is that really where you want to be? Wouldn’t it make sense to attempt to plot a path towards a steady and fruitful CFD trading career?

Here is a simple goal writing procedure.

Identify what it is you want Focus on it daily Kill all distractions that move you away from your goal Gently bring yourself back to point 2.

6. Keep a CFD trading or Share trading journal.

A CFD trading journal allows you to record the trades you make just like you would with a diary entry on your life.

Your CFD trading journal enables you to gain clarity on the reasons why you entered or exited a trade. Also, it will form the most powerful learning experience you will ever have in your trading career.

Hindsight is the most powerful educator, and when you look back on your thoughts and strategies, certain patterns will emerge – the good, the bad and the ugly. Take note of these and map a path to recovery.

Here are some essential items you should record in your CFD trading journal:

What instrument did you trade? The time the trade was entered and exited Reasons behind the trade – Technical, fundamental, tip or dart board? Was the trade a profit or a loss Did you follow your trading rules (not following your rules is a mistake) Out of 10, how would you rate your the trade What were the lessons you learned on entry, exit and overall trade management? Include a chart showing proposed entry, stop and profit target. Always good to show your thoughts before making the trade. You know, the part where you were analysing the trade before the markets opened (fewer emotions).

7. Have a well-defined trading plan.

Are you a discretionary trader or a mechanical system trader?

Either way, you need to establish a sensible trading plan that identifies the following:

Entry Strategy – Test hundreds of entry set ups. Prove to yourself that it works. For those with backtesting software (Metastock, AmiBroker, TradeStation, NinjaTrader, etc.), this process becomes enjoyable. If you don’t have the ability to backtest ten years of data in a few minutes, then your only option is manual testing. Obviously, manual testing takes time, but the rewards are worth it. Money management strategy – How much of your capital to place on each trade. Risk Management Strategy – How much risk to allocate to each trade based on money management rule and stop loss size. In profit stop loss – You need to identify a Stop Loss when in profit. For example a trailing stop loss. Initial stop loss – For those trading the fixed percentage risk per trade money management model, you will need to know your stop loss level to calculate your position size. Record keeping strategy – Keep your trading statistics up to date with a daily CFD trading journal. A handy side note is to keep an eye on the economic calendar every day. There are a few trading apps to help you keep an eye on the high impact events every day.

Your trading plan is designed to keep you calm during the heat of the moment. It also helps your confidence, especially when you know you have an edge but you just had a few losses in a row.

8. Be Disciplined.

Now that you have created your CFD trading plan be disciplined to stick to it.

Consider the countless hours and sleepless nights that went into researching your trading methodologies. The testing, re-jigging then testing and testing again.

Trust what you have done is right and trust that you have a proven edge in the markets. The rest will take care of itself.

How many times have you decided to take profits before your system exit said to?

You watch the position go down, and you pat yourself on the back confirming what a great trader you are. You then watch as the trade moves back in your favour, move higher than your impromptu exit and then blasts off to the blue-sky territory without you on it.

Stick to your system. It will prove you wrong more often than not. Otherwise, build a new trading strategy and be disciplined to keep to those trading rules.

9. Scale in and out of your CFD trades.

In it uncanny how successful traders are neutral for most of the year. This means they are not making any money, but they are not losing any money. But there is usually a window in any 12 month period of 2-4 months where profits are above average.

During any one trading year, there is usually a period of 2-4 months where your system hits a purple patch. You bank a series of wins in a row.

The thing is you don’t know when the winning period is going to happen. So you need to keep your capital intact (Preserve Precious Capital) during those lean months.

When the market turns, it’s time to start adding to your winning positions by scaling in.

All the greatest traders have studied how to apply pyramiding techniques and then mastered how to execute it on their trading systems.

One thing to remember is that scaling strategies work best with trending trading strategies. If your trading system does not provide the opportunity for good trending trades, then scaling may not be suitable for you.

10. Keep a positive mindset.

Don’t treat trading like it’s life or death. Have some fun (Funny Trading Videos) and take your time to learn the essential foundations to successful share and CFD trading.

Along the way, maintain a positive attitude. If you have done the work to develop an edge with your trading, then you give yourself the greatest chance to experience a series of wins.

Everyone has heard the saying ‘fake it till you make it’ and you have to trust you can do this. Use positive affirmations on a daily basis to keep your mindset positive.

Hopefully, these CFD trading tips can point you in the right direction.

No matter which CFD broker or Forex broker you choose, whether you trade Direct Market Access CFDs or use CMC Markets Next Generation trading platform, you must look after your CFD account.

In order to make 2017 your best trading year ever, it is going to take action and a dedicated plan. There is no time like today.

CFD Trading Strategies You Must Know in 2017.

CFDs are similar to share trading strategies, the main difference being you only need a small amount of money up front to control your whole position.

Therefore, the CFD trading strategies you look to employ should be similar to the share trading strategies you’ve been using.

There is one exception to the rule relating to overnight financing charges. When trading shares, you can hold a position for as long as you like and you only pay brokerage to get in and get out.

With CFD trading strategies you need to be aware of the overnight financing for holding positions long term. You will find the overnight finance will eat into your trading profits. Not by much, but they will eat into it.

One great advantage of short selling CFDs is you get paid interest every day you are short, depending on the rules of your broker in terms of CFD financing.

Common CFD Trading Strategies.

Going long CFDs Going short CFDs – Short Selling Short term trading CFDs Swing trading CFDs Intra-day trading CFDs Position trading CFDs Zone trading CFDs Pairs trading CFDs News trading CFDs Dividend stripping Hedging CFDs.

Let’s cover a brief description of each strategy.

Going Long CFDs.

Goal: The goal of this strategy is to buy low and sell high.

CFD Trading Strategy: You notice FMG is in a strong uptrend at the start of 2017, so you decide to trade in the direction of the trend.

FMG started to get sold down in the midst of this nice uptrend, so you set your limit order at $6.00. You put your stop loss 2 ATR away and trail a stop behind your position.

Your goal is to ride the FMG position for as long as the position keeps moving in your favour. In this case, the trailing stop is pretty close, so the time frame would be lower.

If you are trading trending stocks, you could run a larger ATR trailing stop. Perhaps a 2 to 3 ATR trailing stop would work. Always test your strategies first.

Timeframe: This CFD trading strategy is suited to all timeframes. The length of the trade will be determined by the strength of the trend and the distance of your trailing stop.

Suited to: This is the most basic of all CFD trading strategies. It cannot get any more basic than buying low and attempting to sell high.

How can you lose? If your position turns lower then you need to get out. You would lose when your long position goes below your entry price and hits your stop loss.

Going short CFDs.

Goal: The goal of this strategy is to sell high and buy back at a lower price.

CFD Trading Strategy: In the 2nd half of 2016 and at the start of 2017, TPG Telecom shares (TPM) was getting sold down heavily by investors.

After more than tripling in value the 3 years prior, TPG fell out of favour with investors.

If you like trading in the direction of the trend, then TPG would have caught your eye. The downtrend is obvious.

As a result, you decide to wait for overbought conditions at the start of January 2017 and open a short position by selling 1,000 TPG shares.

You then trail a stop loss and wait for an exit. In this hypothetical situation, you short sold 1,000 CFDs at $7.30 and bought it back at $6.42, making a tidy profit in between.

Timeframe: This CFD trading strategy is suited to all timeframes. The length of the trade will be determined by the strength of the trend and the distance of your trailing stop.

Suited to: This strategy is ideal for traders familiar with short selling CFDs.

How can you lose? If your position runs higher then you need to get out. You would lose when your long position goes above your entry price and hits your stop loss.

Short term trading CFDs.

Goal: Take advantage of short-term movements in the CFD market. Short term trading CFDs can be from days to several months. It encompasses all timeframes of which most are discussed below.

When it comes to trading CFDs, your CFD broker will charge an overnight financing rate. As a result, trading CFDs is often used as a short-term trading strategy.

CFD Trading Strategy: Identify short to medium term trends. Using moving averages can help determine the strength of a trend. In order to find the more persistent trends, use a moving average greater than 50.

Swing trading CFDs.

Goal: Take advantage of small fluctuations in the market. One of the most widely used terms in trading. Buy the dips on confirmation of the uptrend. Use profit targets or trailing stop losses.

CFD Trading Strategy: You will notice the stock Oz Minerals (OZL) in the chart below. You may have been watching OZL during 2016 and noticed a nice uptrend in place. FMG comes off its uptrend, hits a turning point and starts to track back to new highs. The CFD strategy would be to use an indicator to identify the turning point. Wait for confirmation of the uptrend and take a long position in the hope of a move higher.

Swing trading CFDs is when you are looking for a trade in the direction of the most dominant trend and you enter on a pullback.

Most swing traders like to confirm the direction of the move before entering. So instead of getting in at the low, you wait for it to break a short-term high. The hypothetical example below is highlighting a rising three periods candlestick formation.

You then place your trade, run a trailing stop loss and exit as your stop indicates.

Suited to: All short to medium term traders confident with stop losses and stop to enter orders.

How can you lose? If your position turns lower then you need to get out. You would lose when your long position goes below your entry price and hits your stop loss.

Intra-day trading CFDs.

Goal: Take advantage of intraday (within the one trading day) moves and close the position before the market closes.

CFD Trading Strategy: Identify stocks with a good daily range. Sometimes referred to as the ATR (Average True Range).

On open, a stock may start heading lower. It may then head back up to its opening price. Some traders like to go long when it breaks through its opening price on the day.

Ride the trend using intraday pricing until your stop loss, or profit target is hit.

The table below (captured on 22 February 2017), highlights the Top 10 most volatile stocks on the ASX300. Paladin Energy (PDN) is by far the most volatile, with the ATR reading showing an average daily move of 12.48% over the last 10 days.

ROC1Day and ROC5Days stands for ‘Rate of Change’. How much did each stock move over 1 day and the last 5 days.

Information above was pulled from Metastock Data.

You will notice the PDN chart below as well. We have highlighted the ATR reading and you will notice how volatile this stock is in 2017.

Timeframe: Open and close your position within the same trading day. Because you are looking to close your position before the end of the trading session, you need fast moving stocks.

If you intraday trade and the stock barely moves, then your opportunity for profit is greatly reduced.

Suited to: Experienced traders who are confident on the computer and understand position sizing strategies.

Risk Level: High. The reason the risk is high is intraday moves are limited. So traders attempt to use larger position sizes to take advantage of the smaller moves.

How can you lose? If you use aggressive position sizing and trade large positions on the short swings, then your potential for loss is very high.

The more leverage you use the greater the chance of a large loss.

The other way you can lose is if you get on trades that don’t move much. You might have 5 successive days where your positions barely move and so you keep getting out at breakeven minus brokerage. Therefore you are having a number of small losses in a row.

Position trading CFDs.

Goal: Position yourself based on intraday information with the intent to hold for days to weeks. You work on computers during the day, have your trading platform open with your trading alerts set and when an intraday alert goes off, you position yourself into the trade.

CFD Trading Strategy: Set FMG alert if price breaks resistance at $5.75. When alert gets triggered, go long 500 CFDs with stop at $5.59.

Timeframe: Intraday (if stop gets hit) to several weeks.

Suited to: Experienced traders with specific entry orders and those who like to check market depth to help time their entry.

Zone trading CFDs.

Goal: You believe the market has a memory and ranges between support and resistance levels. You attempt to buy on support and sell on or near resistance levels.

CFD Trading Strategy: Commonwealth Bank (CBA) was ranging between $71.50 and $79.00 in 2016 as per the chart below. Your CFD strategy would be to buy around the $71.50 level and tighten stops up as CBA approaches resistance at 79.

Timeframe: Days to 2 weeks usually.

Suited to: All levels of traders. Support and resistance levels are some of the most commonly used CFD strategies.

Pairs trading CFDs.

Goal: To take advantage of highly correlated shares that slip out of correlation.

CFD Trading Strategy: NAB and CBA CFDs move in close unison, but you notice that NAB starts outperforming CBA considerably. You take a pairs trade by shorting NAB & going long CBA and wait for both stocks to move back into a highly correlated state.

Timeframe: Weeks to months.

Suited to: Sophisticated traders who have access to charting software that can track two stocks simultaneously and most importantly can create formulas to track the correlation between the two positions.

News trading CFDs.

Goal: Monitor news items in the AFR or business section in your local paper plus websites to find volatile stocks to trade that day. Many stocks reporting news can jump 5-20% in a day. Your goal is to jump on the right side of a fast moving, emotion driven stock.

CFD Trading Strategy: On the 29th of July, 2016 Resmed (RMD) reported their 2016 results. While their revenue came in lower than previous years, their market share was growing. As a result, the share price jumped 6.8% on the day.

To locate these types of opportunities, you need to watch for daily reports. On your trading platform, each stock will have an R beside its ticker if it has a report out. When you notice an R on your stock, you will need to investigate and see what it is about. Then you need to decide swiftly on whether to buy or sell.

Suited to: Experienced traders with a reliable DMA price feed with reports streaming intraday.

Dividend stripping.

Goal: ‘Strip’ the dividend of a stock. Buy the stock before it goes ex-dividend and sell before the ex-dividend date, enjoying a capital appreciation as investors jump on board for the dividend.

CFD Trading Strategy: Many stocks with an expected dividend have investors getting in early (45 days earlier to receive full franking credits). This has the effect of pushing the share price higher just before the dividend itself. Your goal is to ride the increase leading up to the dividend and close your position just before the stock going ex-dividend.

Suited to: Anyone keeping an eye on high paying dividend stocks.

Hedging CFDs.

Goal: Protect current share trades by taking an opposite CFD trade. This also helps to reduce portfolio volatility during wildly fluctuating markets.

CFD Trading Strategy: If you believe the stock (FMG as an example) has finished its run, then instead of selling the physical stock, you short sell the CFD for the exact quantity of shares.

Timeframe: days to years potentially if your stock doesn’t come out of a downtrend.

Suited to: Owners of shares with moderate to high level of experience.

7 CFD Trading Tips.

From Money Management to Positive Expectancy Trading Systems, find out our Top 7 CFD Trading Tips that will help you uncover the ideal trading. Read Full Article.