Cfd Trading Strategies
Before you start trading the financial markets, it is essential that you have some sort of a trading strategy. Without a proper trading strategy, you are minimizing your chance of success. Normally the trading strategies that you will employ will be based on a fundamental or technical analysis. Fundamental analysis at the micro level involves finding out the intrinsic value of a stock. For example, you will be examining a company’s balance sheet, its profit and loss account to try and determine its true value. The way the company positions itself and the management team driving the growth of the company all have a bearing on the value of a company’s stock, in the eyes of an analyst. This type of analysis is normally used when an investor is looking to invest for the long term.
For day trading or short-term trading, most investors turn to technical analysis to help them determine their trading decisions. With technical analysis, the trader will be focusing more on the price data to try and identify patterns that are familiar and will help give an indication of how prices will move in the near future.
CFD Trading Strategies
For CFDs trading, the trading strategies used are very similar to those used by investors in trading the stock market. Nevertheless, there are some advantages in trading stocks with CFDs. For example, CFDs traders can trade on margin, as well as short their trades. This means that regardless if the market is trending upwards or downwards, a CFD trader will be able to profit from the price movements. In other words, trading with CFDs opens up extra trading opportunities for the trader.
Long vs. Short
At the very basic level, you have to decide if you want to go long or short on your market position. Going long means you invest in the market with the anticipation that the price will rise in the near foreseeable future. On the other hand, going short means investing in a market where prices are predicted to fall. When a trader shorts a position, he is actually selling an asset with the hope that the price of the asset will fall hence letting him repurchase the asset back at a lower price.
Short Term vs. Long Term
You also need to decide on the timeframe that you want to invest in. For example, most traders prefer to trade on a short-term timeframe as they can achieve a better turnover on their limited investment capital. The short-term trader’s goal is to profit from the price changes that are occurring on a minute-to-minute basis or on an hourly basis. On the other hand, some CFDs traders prefer to trade with a longer-term timeframe, as the level of accuracy in forecasting the price movements increases with the longer timeframe. These long-term trades can last for as short as a month, up to as long as a year.
Prices in the market never move in a linear direction. Instead, the movements are represented by a series of ups and downs on a price chart. So while a primary price trend might be an upward trend, you will find a series of troughs and peaks within the bigger trend. As a swing trader, your goal is to profit from these series of smaller movements.
The above-mentioned strategies are just some of the common ones used by CFDs traders. While these few basic strategies might be enough to help get by, you need to learn a lot more trading strategies if you want to make a career out of trading the markets successfully.