Contracts for Difference or CFDs are they are popularly known are tradable instruments that many traders want to get their hands on at the beginning of their trading careers. The CFD trading is based on trading assets that mirror the price movements of the underlying real asset.
This means if you have bought a CFD and it is moving up that means that the underlying asset is gaining strength to the upside and vice versa, and it should be noted that buying or selling of CFDs does not mean that the trader owns the asset, rather they are just speculating on its strength and weakness.
There are many strategies out there for trading CFDs bit there a few that are very good CFD trading strategies for beginners that are easy to learn and incorporate in their trading careers.
There are various advantages to trading CFDs compared to other tradable instruments in the market, these include:
- There are very many CFD options to select from as a trader, from stocks to currencies even commodities.
- Trading CFDs requires very low margins; it is not as demanding as trading stocks or futures.
- There are no commissions or fees charged for your trading CFDs.
- As a trader, CFDs are a good choice because you can access the global market from a single trading platform provided by your broker.
CFD Trading Strategies for Beginners
These are very important to know as beginner trader because you will start to appreciate CFDs more and more as you develop. The several strategies that beginner traders can learn and build a profitable strategy off of are as follows:
- Breakout strategy
- Trend following strategy
- Scalping strategy
- Swing trading strategy
All the above-mentioned strategies are easy to learn and adapt, but it is important for the beginner to know that it is only when they follow the rules in their trading strategy constantly.
The only way to be a successful CFD trader is by being disciplined and learning from your mistakes to improve your trading strategy.
Trend Following Strategy
Every market is based on price movements and when price happens to maintain a certain direction for a sustained period of time it forms a trend.
The trend is either bullish or going up or bearish or going down. Your main aim as a trader is to get the origin of the trend before it starts to move in either direction.
After doing your analysis and finding that price is at a critical level and this may make it turn you should start monitoring that level continuously to get a good entry in the direction that price is like to take.
The most important thing the about trend following strategy is that you should have price levels marked out as in support and resistance levels that price has respected in the past for this strategy to work better. These levels will act as targets and areas of focus when anticipating a change or a beginning of a trend.
The breakout strategy is closely based on the trend following strategy; these two strategies can be combined to form one that is more anticipatory than reactionary.
Breakouts happen when a price level that was expected to hold price and have price turn when it gets to it fails and price breaks through it.
The most important thing to note when price approaches a level is if the price is showing signs of strengths or exhaustion. Price will show strength if it closes on the opposite side of that level and if the price does that, you may expect to see price break through that level.
As a beginner trader, you should learn to anticipate what price might do rather than react to price. Reactionary traders tend to be emotional, and this inhibits their decision-making abilities.
Scalping is a form of trading that involves profiting from short-term movements in the market. The trader is targeting movements of 5 ticks to 20 ticks a trade.
This strategy requires the trader to be fast and have a good understanding of price action. The trader should always anticipate price movements based on levels drawn out before hand. That way the trader will have areas to anticipate a buy or a sell.
This means that the trader is going to be trading massive volumes and the best way to be profitable trading this strategy is making as many trades as possible and taking your profits when they reach their set objectives. The CFD beginner trader should first try the strategies discussed above first before trying this one out.
Swing Trading Strategy
Swing trading is quite the opposite of scalping; it involves holding your trades over a longer period of time targeting bigger gains. As a beginner trader, this might be tough since it involves how you can handle the different legs that price makes as it approaches your target.
As a swing trader, you should be one who has patience as an attribute to your character. This will take some time for many beginners to master but this strategy is one of the best when it comes to the risk to reward ratios.
As long as you have your analysis right, the best thing to do is waiting for your target to be hit. It is easier to trade like this compared to scalping since you have to do one to three trades a week and just monitor them compared to the scalper who is glued to their screen almost all day long.
These are some of the simple strategies I will highly recommend for these trading strategies for CFD trading for anyone who would want to get involved in them.
They are easy to learn and use as well, but it should be noted the rules derived from these strategies should be followed so that progress can be achieved.