When you trade CFDs (Contracts for Difference), it is important to have a strategy in place. You don’t want to just make random decisions – you need a proven, consistent, and repeatable strategy. Having a strategy gives you a framework to make consistent investment decisions. Here are some of the most popular strategies for CFD trading.
Technical trading is based on analyzing charts and graphs, to identify patterns and anomalies which can lead to profit opportunities. Investment decisions are based on facts, figures, and charts, and the basic principle is that the evidence never lies (though you can easily find contradictory indications at times). The goal is to understand past patterns, so that you can better predict future movements. Modern trading platforms provide a great deal of sophisticated data analysis tools that are helpful for technical traders.
Momentum trading is a simpler strategy to understand. In essence, you look at price movements, then open your own positions so you can “ride the wave”. Many times industry news and macroeconomic indicators can help predict these movements. A single company announcement can move not just that stock but a whole industry. It takes experience to be able to blend knowledge of charts and price data with news announcements in order to forecast momentum, but watching daily will give you a better feel for it.
Swing trading involves looking for assets which are currently trading either above or below their normal range. The thinking is that these are due for a correction, so investors will buy at this high or low point, waiting for the correction to take place. This strategy can work in many conditions, but working with market momentum can boost profits. Swing trading can be a longer-term strategy than others, but it is important to watch financing costs and have stops in place.
This strategy involves making trades that balance against each other, providing a hedge against unexpected price shifts. Usually this means taking out two positions in the same industry – one goes long while the other goes short. By doing this, you give yourself a chance to make a profit when you trade CFDs online, even if the market goes opposite to what you expect. As long as your gain on one trade exceeds any loss on the other, you can have a net profit.
Good strategies are based on a deep understanding of investing fundamentals, as well as ample real world experience. Starting with one of these popular strategies will give you the benefit of other people’s experience as you begin trading CFDs.