The ABCs of Trading Contract for Differences (CFDs)

If you are interested in starting to trade CFDs, you need to take time to come up with the best strategy for your trading style. The best way to find the best strategy is to learn of the best strategies for CFD trading. Trading strategies are market approach plans that ensure you only invest where you are likely to make profitable returns. These strategies also work to ensure you become a better trader and that you make more profit than you do losses.

The CFD trading strategy you settle for has to fit your attitude you have towards the markets you want to trade. The best strategy for your trade should also be one that suits your preferred trading time, technical knowledge and risk appetite.

In this article, you will find the most ideal CFD trading strategies you can use to trade in demo and live accounts on any platform.

Day trading strategy

The main principle of the day trading strategy indicates that traders should never leave any of their trading positions open after the closure of the forex market. This way, they can avoid the added cost and risk associated with holding a trading position overnight.

As a day trader, your main agenda should be generating quick profits from even the smallest price movements before close of business. Since it demands taking advantage of small market movements, day trading is only ideal for full time traders who can keep watch on the market chart all day.

Preserve Precious Capital (PPC) strategy

PPC is a capital preservation and money management CFD trading strategy for all traders and is the most important strategy to learn as a trader.

A common mistake traders make is getting too fixated on making money that they forget to preserve what they have invested.

In a PPC strategy, a trader learn skills they can use to protect the money they have invested in CFD markets. This is achieved by knowing which open CFD positons are more likely to make losses and trying not to investing in them. Instead, traders should focus on putting their money in CFDs with the likelihood of making profits. Learning how to pick the best CFDs is the ultimate way to preserve precious capital.

 Swing trading strategy

Swing trading heavily emphasizes on technical analysis of the CFD market. It requires a trader to find price patterns that offer the best short-term positions for trading.  As a swing trader, your whole trading agenda is focused on the price of the CFDs you are interested in trading. Generally, swing traders are less focused on the value of the asset when looking for the best assets to trade.

As a swing trader, you can hold different trading positions for several days. Typically, most swing traders hold position for longer than day traders do, but shorter compared to position trader.  As a swing trader, you are also at liberty to make trades against a trend if it presents a good opportunity based on your system analysis.

Position trading

This CFD trading strategy allows traders to hold specific CFD assets over the longest trading period, usually a few weeks or longer.

As a position trader, you can expect to make fewer CFD trades compared to day traders. In addition, every trade you make delivers a bigger potential for profits. However, your ability to enjoy these huge profits is dependent on your market timing. You need to know when to sell open CFD positions. Holding them for too long increases the possibility of significant losses just as they do for profits.

Scalping

This is a strategy used by a very short terms CFD trader, often refers to as a scalper. This involves trading CFDs just a few minutes before their positons close. A scalper’s strategy is all about trying to beat a bid-offer spread and skin for a profit that only spread over a few points before positon closing. To perfect your scalping strategy, you need to be good at reading tick charts.

Choosing the best strategy for your needs

If you are having a hard time deciding on the best CFD trading strategy to follow, you can employ the use of technical indicators. These make it easier for traders to come up with best strategies for their CFD trading needs. You can also employ different strategies on demo account to determine the best one for your trading needs.