CFDs or Contracts for difference are tradable instruments that are derived from mirroring the movements of their corresponding primary assets. When one trades a CFD, they do not buy or sell the actual asset but rather they buy and sell the representation of that particular asset.
With CFDs one should focus mainly on the primary asset and analyze it keenly, because its movement affects the CFD that corresponds to it. CFDs are rather cheap to trade with compared to buying the asset as it is, that is why there are very many traders now who have access to the stock market and can participate in it alongside the big players in the market.
CFDs can be created for almost any tradable instruments; they range from stock CFDs, to forex CFDs, also commodities and precious metals CFDs are available now to be traded. Traders who trade CFDs have strategies that are rather advanced but others are rather simple and beginner trades can learn these strategies too.
CFD Trading Strategies and Tips for Beginners
The following are some of the strategies that a beginner trader can learn and incorporate in their trading. Break out strategies, news trading strategies, trend following strategies, scalping strategies, and swing trading strategies.
Trend Following CFD Trading Strategy
This strategy is one of the easiest strategies to use as a beginner trader. It requires a small amount of analysis to begin with and you can choose a single CFD and just trade it using this strategy.
The most important aspect of this strategy is your timing. Timing in the sense that you focus on economic news, current price levels where you can expect price to move from vigorously.
Maybe you are focusing on a particular stock CFD, they are about to release its quarterly earnings reports and from your analysis they have had a very strong quarter and the news will push the stock price higher.
So you determine a good entry level for your buy order and set your risk parameters and wait for the news, as you had expected the news is positive and your trade is filled.
You will hold you trade in the current direction until there is a change in sentiment that will cause the current direction to change; that is when you will close your trade or take a big portion of your profits.
Breakout CFD Trading Strategy
The breakout strategy is meant for traders who are beginners but have an understanding of trends; the break out strategy is a pattern that utilizes the current trends direction. So, if you are a beginner trader and you have a pull towards this strategy it is better if you study the trend strategy first and internalize it before getting to this one.
When price is moving up or down and it has been in that direction for a while many people tend to get into it thinking that price will carry on in that particular direction.
The catch in this strategy is noting these points in price where it seems to have exhausted its move upwards or downwards. This can be noted when price starts moving sideways or consolidating, you will know this by seeing price move between two particular levels above and below its current position.
Your main aim is to determine whether rice has enough strength to go beyond either levels, if you feel that price will breakout above you buy, if you feel its breaking out lower you sell. That is a strategy that is well suited for the trader who has the trend strategy internalized.
Scalping CFD Trading Strategy
This strategy is one of the strategies that require a lot of knowledge about the current market conditions. As a beginner trader wishing to use this strategy, you should be ready to be keen on what the market sentiment is and the current direction of the market at the moment.
After learning those two things you should understand that scalping involves trading on very short time frames. You are capitalizing on the minor changes in price and those happen fast so you should be fast as well.
If you are not a fast thinker and keen to detail this strategy will not be a good fit for you and you should also be ready to make as many trades as the opportunities present themselves. This strategy can be very profitable for traders who learn it and use it effectively.
Swing CFD Trading Strategy
Swing trading is the complete opposite of scalping, this is a more fitting trading style for traders who want to place a trade and wait for their targets to be hit. This type of trading is also a good fit for that trader who has a day job and does not have time to look for opportunities during the day.
One can do their analysis and place their trade at the beginning of the trading week and close it at the end of the week. In between the week they can check on the trade’s progress and determine whether it is profitable to continue holding it.
The beauty of this strategy is that you are not going to expose your account to massive amounts of risk by trading continuously rather you are focusing on ones trade and holding it to your target.
This strategy can be used at the beginning of your trading career and as you develop and as your account grows you can handle more risk and you place multiple trades or even scalp for shorter targets.
The essence of all these strategies is to ensure that the trader has multiple options to try out before settling for any particular one. As a trader it is important to give yourself the freedom to explore before finding where you fit.
As you continuously search for your place as a trader you can start with this one’s as they are fit CFD trading strategies for beginners.