CFD trading strategies

CFD trading strategies

Trading in financial instruments involves a high return on investment, but also bears high risks. The key task that any trader faces is to find algorithms that will increase profits, while reducing losses. Such algorithms in professional language are called strategies. Strategies are understood as a set of rules that characterize the principles of trading, giving unambiguous answers to the questions when to buy and when to sell. Our educational center has collected simple but effective strategies for working with CFDs.

Why strategies are needed

If in your work there are no strict rules. This is not an investment, but a gamble. Even if such a game at a certain stage is profitable, then in the end it may still lead to a collapse.To avoid such a situation, it is necessary to employ strategies that must unambiguously answer the following questions:

  • Why do I open a deal
  • Why do I open a deal right now.
  • In what direction should I trade and when should the contract be closed.
  • What is the probability of successful closing a deal.

Any strategy involves a definite answer to all the above questions. For example, our training center accumulates simple strategies that answer all these questions and allow you to work with all major types of assets. In any strategy, you should upgrade and adapt to your understanding of the market. We recommend that you familiarize yourself with these strategies in order to understand the principles they are based on and function. After that, you can independently choose for yourself a trading algorithm and develop your own rules on which you will be ready to invest.

What is most important, you must understand that trading is not a game. It is a common mistake to think that to trade is like to toss a coin: eagle or tails, up or down. If this were the case, then the probability of profit would be 50 to 50. But financial markets are interesting because of using trading strategies and with his intellect trader can increase the probability of his success by significantly reducing investment risks.

The system against chaos

Very often beginners say that the market is chaotic and all developments on it are not conditioned. In fact, this is not true. The trick is that there are a lot of external factors that affect the price. At first sight they are invisible. Political, economic, social factors are reflected on the graph. And even if at first glance it seems that the arising movement is illogical, it always has a rational explanation. Professional traders have learned to understand and find the patterns of the market, with which you can make fairly accurate forecasts for the movement of the course for short and long distances. It is the search for these patterns that lead to the emergence of trade patterns, indicators and other strategies that analyze historical data, making a forecast for the future.

Model strategies

However strange it may seem, typical strategies are among the most effective in the financial markets. They are based on simple and fundamental factors affecting the development of prices. Such strategies are perfect for beginners and for the first attempts in trading. In the future, gaining trading experience, you will adapt these strategies for yourself, manage the degree of their risk.

Bollinger Bands

Bollinger Bands are probably the most common indicator of technical analysis. It gives unambiguous and sufficiently accurate trading signals. Visually it represents three lines. The work with this indicator is quite simple - if the price has fallen to the bottom line of the indicator, then it is necessary to open deal for a rise, and if the price has approached to the top line – deal for a fall. Although it is one of the simplest CFD strategies, however its effectiveness is not lower.

Relative Strength Index

The Relative Strength Index is known as RSI among professional traders. This tool helps to easily determine the stages of the market at which the financial asset is highly overestimated or underestimated. The general rules of this strategy are that if the indicator line rises above 70, then it is necessary to open deals for a fall. If the line does not fall below 30, then in the long term, the deal will be for a rise.

Parabolic SAR

Parabolic SAR is a less common indicator, but the strategy it is based on has proved its efficiency in dealing with CFDs. The main purpose of this indicator is to find such points, after which there are changes in the price development. The indicator itself represents points above and below the price. If these points are above the price, then the market falls, if they are lower than the price, the market grows. When new points appear, deals should be opened. If after the downward movement there was a point below the price, we open the deal for a raise. If after the upward movement there was a point above the price, then we open the deal for a fall. Very often this trade strategy is used in conjunction with the MACD indicator.

MACD

MACD serves to determine the moments of price convergence and divergence. This indicator and this trading strategy are rarely used by beginners, since it is considered a complex financial instrument. In fact, this is not true. The strategy itself gives a lot of signals that can be easily interpreted. One of the principles of identify signals is to work with the intersection with the zero line. If the histogram columns cross the zero line from top to bottom, then you should deal for a fall. If the histogram crosses the zero line from the bottom up, then the deal should be opened for a rise.

These are key trading strategies that can be employed in practical trading. They can be combined and supplemented.