5 Best CFD Trading Strategies

5 Best CFD Trading Strategies

Designing an effective day trading strategy can be somewhat challenging. However, when you opt for another financial instrument such as CFDs, your work could be easier.

In CFD trading, you draw a profit from the difference between entering and exiting a trade. This is because you can benefit when the fundamental asset moves with regard to the position taken. What’s more, you don’t need to own the entire fundamental asset.

CFD trading also allows you to invest more money than what’s in your trading account. As a result, market movements are amplified regardless of whether they’re headed up or down.

However, you can make massive losses when you start to trade CFDs if you don’t know what you’re doing. For this reason, we have compiled a list of the best CFD trading strategies that will guide you to success as you trade.

1.   Hedging

Hedging is quite different from other CFD trading approaches because it’s more like a kind of insurance. This approach works best when you already have a diversified portfolio of CFDs or stocks that you are holding for the long term.

Investors use hedging to shield themselves against short-term value drops. Suppose an investor owns Microsoft stocks, and they believe the tech sector is weakening, and the value of the stocks will fail. In that case, they don’t want to sell their Microsoft stocks to shield themselves against low prices because they believe the stocks will rise in the future.

Instead, the investor will launch a short position on a CFD for Microsoft stocks. That way, they will profit from the short-term drop in stock value without losing the asset.

2.   News Trading

One of the top CFD trading approaches is following the news, which involves an all-inclusive economic and financial calendar; this will keep you up-to-date with the forthcoming events that might affect the value of the fundamental asset.

This strategy splits CFD trading into two options:

The first option aims to comprehend and forecast the reactions to the news release. This is quite risky because it will be difficult to predict how the market will respond.

The second option is to go with the flow and make trades after the news release. This way, you get to see the market’s direction because of the news and follow it.

3.   Pair Trading

Pair trading is one of the most common CFD trading approaches for stocks, although it can also be used with commodities and currency pairs. This approach can be utilized with both high or low market instability; the direction of market movement is not significant.

Pair trading comprises investing in two CFDs that are in the same industry; one with a short position and the other with a long position. Both assets usually should be having a high correlation but have recently started to become less correlated.

4.   Swing Trading

Swing trading is a CFD strategy that’s all about identifying the trending markets. The focus is on markets that are moving in a certain direction. This allows investors to pinpoint assets that have the potential to move by a huge amount in a very short time.

5.   Technical Analysis Trading

Technical analysis is at the base of most CFD trading plans, each with its own set of graphical tools and indicators. This approach involves reviewing historical charts and information in order to make logical calculations. The main thing here is to take note of all past trends.

Setting up worthwhile indicators can be a massive boost with technical analysis CFD trading plans. Investors can set support and resistance levels where the former equals established lows, and the latter is equivalent to established highs.

Trend lines are an easy pointer to use. This involves drawing a straight line between two points on a chart. To show a rising trend, draw a line between two lows; to show a dropping trend, draw a line between two highs. If the trend line has been touched in three points, it’s validated.

Another indicator to boost your technical analysis CFD approach is the oscillator. Oscillators depict oversubscribed and undersubscribed conditions in markets. They indicate whether the asset has increased or decreased too far such that a change is imminent.

Final Thought

All in all, CFD trading strategies are the basis of any prosperous day trader. A good strategy will not only offer good forecasts for entry positions, but it will also carefully manage your position’s risk and notify exit or trailing stop positions.


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