Contracts for difference have revolutionized the world of online trading in an extremely short period of time. Successfully replacing traditional shares exchanges with a unique way of trading, CFD trading allows each investor to maintain a purchase of an underlying asset with less expenditure than this trader would achieve, working with traditional stockbrokers. In fact, what is important in CFDs online trading– is to choose the most reputable interactive brokers. Below you can find 4 of the top CFD trading strategies available to traders:
Trading Support and Resistance with CFDs
Notice: most financial securities tend to change their direction, going up or down in a specific period of time. Taking into account this fluctuation, you should consider that online trading with CFDs can be beneficial. Support and resistance levels are created when either supply or demand becomes predominant in the market.
Use the CFDs online trading strategies that apply limits of the support and resistance levels:
- Determine whether the market goes sideways: look at charts, use indicators.
- Check stock’s sector; consider a specific stock you are interested in.
- Make sure, that previous trend is finished: analyze the time scale.
- Check how many times a specific price has visited the level and turned back—make sure of the validity and strength of the support and resistance levels.
- It is beneficial to buy a long CFD position in the stock when the price is approaching support.
- A short position is preferable when the price is going up to resistance.
Momentum Trading Trend
Consider one of the most popular trend strategies—the Momentum Trading.
- By buying a momentum—buyers push the price up.
- Momentum is over when the price fails to make a new high position.
- Buy the stock, considering uptrend signal (when the price closes higher than its moving average) and close your online trading when the price closes below the determined position.
- Choose 3-15 moving averages: check the overlap of two—buy the faster and shorter one.
Pairs Trading with CFDs
Trading pairs deal with trading on a long and short position in the same time in two related stocks, commodities, indices or currencies. Below is an example of pairs trading using stocks:
- Identify two potentially strong stocks that correlate, but have moved away from their usual relationship. Buy one—short the other, benefitting from their variation.
- Choose interrelated pairs of the same sector: Buy Pepsi-Cola, Sell Coca-Cola.
- By the stock of a strong company—sell the stock of the weak company.
- Choose sectors smart: consider their weight in the market. For instance, you can focus on the health care sector versus the materials sector if you believe that health sector will be undervalued.
Short Selling and Shorting
Short selling is a way of trading with CFDs that helps you to benefit from a decline in a share’s price.
- Borrow shares you would like to short.
- Sell the shares on the stock market at the market price.
Re-buy the shares, speculating on the lowered price and return them to the person you have borrowed from.