Best CFD trading strategies for beginners

CFD trading strategies

Table of Contents

Are you considering trading CFDs? These beneficial derivatives give you the good potential for higher returns. However, this potential comes associated with higher risk. There are a few essential aspects you need to be aware of. Only once you have thought about these are you ready for CFD trading. CFD trading strategies for beginners also demand that you manage your risk and plan your trading. 

Strategies to successfully trade CFDs

Develop your CFD competence 

CFD contracts for difference. A CFD is a derivative product that permits you to speculate on a range of global markets like commodities, forex, shares and indices, sans the need to own the underlying asset. This implies that you may take a position on appreciating and declining markets. For example, you could sell or go short in case you forecast the price will plummet. Equally, you could buy or go long in case you forecast the price will appreciate. 

CFDs are a leveraged product. You can access a position by placing a deposit, called margin. The calculation of your profit and loss is per the position size. 

CFDs – the facilitators 

CFDs permit you to expand your capital investment further. You merely have to deposit a fraction of your trade’s full value to open a position. The deposit you have placed down is a margin. 

The amount you will need to deposit is contingent upon the position size and the chosen market’s margin facto. Learn more about CFD margin requirements from PrimeFin, ABinvesting, and Investby. 

Building a trading plan 

  • A trading plan shows you how, what, when, and why you ought to trade. It will shape your behaviour. It will sidestep emotions altogether. Your trading plan will have advice for you on the following : 
  • Motivation,
  •  Time commitment,
  •  Trading goals,
  •  Attitude to risk, 
  • Available capital,
  •  Risk management strategies,
  •  Markets to trade, 
  • Trading strategy, 
  • Recordkeeping. 

Your consistently followed CFD trading strategies

A trading strategy gives the trading style you plan to use, including a methodology for entering and exiting trades, besides the indicators and tools you might use. Your strategy will be contingent upon how much time you want to spend observing the markets. There are diverse trading styles you may use contingent upon which strategy attracts you. 

Sticking to the CFD trading strategy is essential. You will not be trading based on fear or greed. 

Backtesting your trading strategy and keeping track of your wins and losses will confirm for you if your CFD trading strategies are working or not. 

Time your trades per your market analysis 

When forming your CFD trading strategies, you have to determine what type of analysis you will use and identify entry and exit points. You will be concerned with two forms of analysis – fundamental analysis and technical analysis. Fundamental analysis concentrates on external events and influences like macroeconomic data, breaking news and company announcements. On the other hand, technical analysis tries to forecast a market’s future direction by analysing future price charts. 

Though you can use these forms of analysis separately, you can just as easily use a combination of the two. 

Your total position size has to make sense to you 

Your position size is your trade’s total market exposure. Therefore, upon opening a new position, you have to be mindful of the capital available with you and the amount of risk you are willing to take. 

Each CFD trader ought to delineate precisely how much capital they are willing to risk on each trade. 

CFD trading being leveraged, your total position size will always be vastly more than your starting deposit. As a result, you may lose more than you commit to one single trade. 

Consequently, a prudent approach is just to risk a tiny percentage of your capital on one trade. Of course, it goes without saying that you will be managing your risks with stops and limits.  

Manage risks with stops and limits 

A commonly employed method of risk management is attaching stops and limits to a position. These predefined your trade’s exit levels. For example, a stop-loss order instructs your broker to close your trades at a price less favourable relative to the ongoing market price. 

There’s the option of placing a limit close order, closing at a level more favourable relative to the ongoing market price. This closes your trade once you have arrived at a specific profit. 

Small beginning and diversification 

You will be grateful to CFD trading strategies for beginners. These will permit you entry into plummeting as well as rocketing markets. 

Start small. Once you gain confidence, diversify. Open an account with PrimeFin, ABinvesting, or Investby. 

Surveil your open positions 

Despite all the stops and limits in place, it becomes vital, time and again, to review positions. Thereby you can identify issues and opportunities swiftly and guide your actions. 

You obviously must have enough capital in your account to cover the total maintenance margin stipulated to keep your position open. In case your account falls below the minimum level, you will find yourself on a margin call. Failing your topping up of your account, your position shall be closed forthwith. 

Resist the urge to add to a losing trade 

CFD trading strategies for beginners will also point out to you that your success also lies in how you assess your losses. You are always aligned with your trading plan. However, you refrain from giving in to greed. With practice, you will know how to execute trade exits without getting hurt. 

Your demo account 

CFD trading strategies for beginners are best practised on a demo account with PrimeFin, ABinvesting, or Investby. Demo trading will not permit the loss of real money. However, virtual funds in simulated trading scenarios will give you a good grounding in what to expect when it comes to live to trade. 

When you start live trading with a small initial deposit, you will know you have arrived. 

Why CFD trading strategies are important? 

Regardless of what financial instrument you are trading, you have to plan your trades cautiously prior to putting capital at risk. When you trade CFDs, the derivatives’ leverage component implies that you have to be still more careful. 

In a number of ways, the critical things to consider when trading relate sensible planning and risk management . Several trading methods may be developed to help you calculate how and why you will make a trade. However, these tips are fundamental for the success of all traders (students of CFD trading strategies for beginners included). 

  • Let your risk levels stay conservative by the use of stop losses and sensibly sized positions. 
  • Understand that you are not going to get wealthy all of a sudden. Rather, try to move forward ever so slowly with a well-considered trading plan. 
  • Pay attention to the management of existing trades. Do not spend all of your time looking for new trades. 
  • Let your trading method be coherent and single, rather than a mish-mash of ideas. In case you change your plan, do it step by step rather than all of a sudden. That permits you to decide better what’s wrong and what’s right with everything. 
  • Do not make your decision about the provider you’d like to use on the basis of which one affords the lowest margin requirement. Usually, this cannot be permitted to become a major concern simply because you do not want to be so highly leveraged. 
  • Regardless of how seasoned you are with other products, start small with CFD positions, thereby averting unpleasant surprises.
  •  Have an awareness of the risk you are exposed to. This is in regard to both individual positions and your portfolio overall. 
  • Leveraged trading ought not to make up the lion’s share of your investment portfolio, nor ought it be done using the money you need to live on.
  •  Do not look for the best method that will always be correct since it does not exist. Rather concentrate on containing your losses and your methods consistent. 

Building your CFD trading plan 

When folk hear about the benefits of trading CFDs, they frequently wish to get launched straight away. Perhaps you feel the same way. So what’s wrong with getting all revved up to hit the ground running? 

Take a deep breath, though. Don’t let your enthusiasm run away with you. Take the time to mull over how you are going to approach the prospect of becoming a CFD trader. You will need those CFD trading strategies for beginners. Your trading plan will count on the following. 

  • The method

It is vital to come up with a method you may try again and again. In case you trade with little planning, you will find it very challenging to work out what happened thanks to good fortune and what was a result of good management ; 

  • The entry points

You have to know what trades you are searching for and what conditions will precipitate an entry into a position. Make sure you never change your reasons for being in a trade once you have entered it. after you have begun doing this, you can justify being in any trade since all you to do is change the reasons around ; 

  • The exit points

You ought to know where you will exit a position and the extent to which you are willing to risk prior to you actually placing the trade. It is true that you cannot always tell precisely where your trade will be – given the market gapping. However, you have to be clear regarding the requirements you must meet to close out the trade; 

  • The record-keeping

You ought to be clear about the ways in which you may keep track of your trades. Good record keeping implies that when you revise work already accomplished, you will easily understand what needs to be changed. 

Long trading & Short trading CFDs

A prominent CFD characteristic is that you can trade on both the market’s long and short sides. Even in case in the early stage of your CFD trading experience you’re unsure if you will wish to trade on the short side, you ought to still spend some time learning the meat of it so that your market knowledge is fuller. That’s when studying CFD trading strategies for beginners shows its usefulness.

  • Trading the long side

This implies that you have made use of a buy order as an opening trade or ‘gone long’. This further means that you are expecting a price rise and will be using a sell order to close your position ; 

  • Trading the short side

This implies that you have opened your trade with the use of a sell order or ‘gone short’. The implication is that you expect prices to plummet and use a buy order to close our position.

 Though it may not seem instinctual, that’s how you close out your market exposure. That’s when consulting PrimeFin, ABinvesting, and Investby enhances your trading insight. The advantage of short trading is that you may profit directly from falling prices, which CFDs can do for us. 

Knowing your CFD Trading Strategies order types

You have to be ready to be held accountable for the trades that you make. In case you are not fully conversant with the order types, though, it is going to be very difficult for you to trade confidently. When you know your order types, you may concentrate all your time on your trading strategy and execution. Usually, CFD providers -like PrimeFin, ABinvesting, and Investby – will provide you with a variety of order types, thus empowering the more effortless execution of trading strategies. 

  • A market order facilitates entry at the current price. 
  • A limit order emperors you to put up an order to buy/sell at a lower/higher price relative to what the market is trading at the same time. Traders use these order types as they wait for the prices to move close to a support/resistance level prior to entering the market.
  •  A stop order permits you to close a position below the ongoing market price. This is the principal means traders utilise to manage risk on positions they take out. 
  • There are other order types like if-done orders, and one cancels others orders. The order types available will vary with the providers you use. Usually, advanced orders allow you to connect diverse order types together to execute more of your strategy in one salvo. 

Having in-depth knowledge of your markets before trading CFDs

A lot of CFD providers permit you to deal across several markets from the same platform. Prior to entering the diverse markets available, though, you have to learn about market opening and closing hours, underlying product specifications, and currency effects. PrimeFin, ABinvesting, and Investby will give you the details of the CFDs on offer, and advise you regarding the times these trade. 

You will have to bear the following in mind: 

CFDs are prices founded on an underlying market’s value. The implication is that you have to be conversant with conditions obtaining in the said market. For instance, if you wish to trade share CFDs in Canada, you will be in the know of the time the underlying market is open, for the simple reason that that will dictate when you can trade these CFDs. 

Forex trades 24 hours a day between Monday morning, Asian time, to Friday evening, US time. Many commodities and indices trade rather long sessions but may close now and then over the course of 24 hours. 

Syncing CFD trading strategies with risk management 

Risk management is vital when it comes to leveraged CFD trading. Capital preservation is the key concern. Entry signals are a distant priority, relatively speaking. 

The following is something to chew on, whole you are considering drawing up and implementing a life-saver risk management plan: 

Sidestep overleverage

The leverage amount you permit yourself has to reflect the capital amount in your trading account. You ought to be aiming for about 3x leverage on your capital. For instance, in case you have GBP 10000 in your account and hold GBP 30000 worth of positions, you resultantly apply 3x leverage to your money. Whereas the leverage that you have applied to an individual position could be way higher, do not ever forget to check the broader picture of your total leverage. 

Opening too many positions is unwise 

Plenty of investors concentrate their stamina on finding the CFD provider that affords the most minor margin requirement but then lose their bearings opening multiple positions, ending up squandering away their trading capital. An obvious mistake – since leverage’s effects dictate that one bad trade is all it takes to scuttle your joyride. 

Be aware of the conditions obtaining when you may have to exit beforehand 

Have a good idea of what a losing trade could cost you. It never hurts to know just what (trade) you are getting into!

Do not assume your exit point will be at precisely where you have set your stop loss. 

Gapping can take place in any market. The implication is that the stop loss will be executed at a worse price than foreseen, thereby costing you more. 

Conclusion 

CFD trading is good for beginners as well as professionals. PrimeFin, ABinvesting, and Investby have a vast range of resources to aid beginners in getting started. Your trading strategy will dictate how long you can hold CFD contracts. 

There are CFD trading strategies for beginners that make for success. However, there’s no definitive single best strategy for CFD trading. Risk management tolerance, apart from your trading goal, and indeed, your personality, will decide the CFD trading strategies specifically suited just for you. 

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