CFD Trading Strategies
In many cases, CFD trading strategies mirror those of traditional stock traders. But some slight differences mean you can both be more flexible with CFD trading and also see potentially higher profit levels. There are a variety of strategies to try, and here we look at some of the most popular.
Common CFD trading strategies
The most common CFD trading strategies do have some elements in common. They give you a more extensive range of viable options. This means there is always some type of strategic financial position – even if we decide just to leave the money in the bank. That’s because even this means you are essentially betting that the currency will perform well versus other classes of asset.
That said, let’s take a look at some of the most common strategies and how they work to give you some ideas going forward.
Long vs short
The purchase of an asset is mostly referred to as a long position. The idea of this is that the asset gains value over the life of the investment contract (the CFD). The other side is the short position where an investor ‘sells’ the asset at a certain level but intends to repurchase it at a later date. The expectation of the short seller is that the price will fall over the contract duration. But if they are incorrect, then the trade will build losses equal to the difference between those opening and closing prices.
Short term vs long term
Another critical aspect of CFD trading is the timeframe. Short term intraday trading is where trades are based on prices that change from hour to hour or even minute to minute. This can be ideal for limiting financial costs. Long-term trading looks at underlying trends in the market to capture more substantial price moves that take place over months, years or even more extended periods.
Swing trading is the attempt to make a profit from smaller reversals or swings within a bigger trend. In bull markets, for instance, prices will experience periods of consolidation or retracement and fall below their previous high levels. The opposite is true in a bear market where there are chances for short positions. Trends can be easy to identify and forecast, but it can be hard to spot that exact reversal point.
Hedging is a protective tactic as opposed to a strategy to make new gains. Hedging traders are already established in open positions and are aiming to protect these from losing value. This is done by taking an opposing stance – opening a trade that is the opposite of the open position. These trades move, making one a loss and one a gain and balancing each other out. This means that the total position is protected, and there are no new losses but also, that there is no way to make a higher profit. It is often used when there is a lot of market volatility, and prices become unpredictable.
Choosing a strategy
Choosing a strategy is about understanding the options available and having a clear plan on how to use them. Identify your goals and investment needs and then tailor an approach that best suits them.
Whatever strategy you choose to try and how you put it into action, the key is to select a trading platform that is easy to use and reliable. Weiss Finance offers a user-friendly interface with a range of different trading options to allow you to work on the CFD trading strategy you want and to understand the outcome of these trades fully.