Having a CFD (Contract for Difference) trading account, reading the basics and having some knowledge about CFDs does not make you prepared for trading. New traders who have no experience likely gets trapped to the temptation of a gut feeling by blindly believing a recent news without even evaluating it. As a trader, it is important to contemplate first if you are really trading or just merely betting. Making trades randomly will not produce profits. What you need is a dependable CFD trading strategy.
Trading strategies for CFDs are the same as those used by common stock investors. However, there are slight advantages in CFD trading that gives added versatility and potentials for a larger amount of profit. CFD traders utilize various strategies for trading because of the leverage it can provide. These methods are used to raise profits in your trading account, in a very short period of time. Moreover, CFDs give traders the ability to go short — a strategy that enhances the range of opportunities for trading. Here are some strategies, most CFD traders regularly use to gain profits:
Buy Low and Sell High
The most effective and simplest of all the strategies in CFD trading is the going short strategy. You just simply enter a selling position which has a higher price then close your position when the price is lower. This strategy is so advantageous because it can be used anytime. This is an awesome strategy to start enjoying your profits. In the image below, it shows that a certain market is going bearish — investors are heavily selling down the shares. In this situation, the trader opens a short position by selling 1,000 of its shares. He then analyzes the market and prepares for a stop loss order, and make an exit. In this example, the trader made a profit by short selling 1,000 CFDs for $7.30 and buying it back for $6.42.
Contracts for difference is a very advantageous tool because it gives traders the ability to instantly enter and exit a market; giving traders a very favorable situation to gain at a very high level in just a short period of time. If you are beginning to trade CFDs, the best way to do it is by assessing the short-term movements of the specific market. These are the movements that happened within a few days and may even stretch out to a few months. The technique here is to search for a trend and analyze its moving averages. If the trend seems to be consistent, you can then use a higher moving average.
Swing trading capitalizes on small fluctuations in a specific market. It is one of the most widely used strategies used for CFD trading and it is easy to use. First is to look for trending market then focus on the trending market’s direction. Patiently and attentively wait for a pullback and then enter a position when the trend resumes. Swing trading is a strategy that uses technical analysis. This analysis help traders identify a market that has a high chance of moving in price. It gives opportunities to know when to enter and exit a trade. When using swing trading, it is essential to avoid markets which are not trending. Focus on the ones that are trending in a particular direction.
Traders usually use hedging when their positions are already established and they plan to protect their position from losing value.This strategy is so favorable because your position is guaranteed to be protected and the risk of new possible losses are eliminated. The only disadvantage of this strategy is that you also eliminate the possibility of rewards. Often times, this method is used during periods of severe volatility where price activities are hard to predict and traders want to remove possible risks which will be involved.
Before you resume trading, please notice that these strategies are only given as guides and tips for you. Always keep in mind that there are risks in trading and having losses is a part of it. You may not control the market, but you can control your losses. Remember, only invest those you can afford to lose.