CFD Trading Strategies for the Novice Short-Term Trader

Many investors are looking for diverse ways to invest their money. Many investment vehicles are open to anyone that wants to dabble in trading. CFD trading is one of the many investment options open to traders. 

So, what is a CFD? Contracts of Difference (CFDs) are financial derivative products that facilitate trading on the price movement of financial assets such as:

  • Currency pairs
  • Commodity Futures 
  • Cryptocurrencies 
  • Shares and indices 
  • Shares and indices 

CFDs enable you to trade freely on price fluctuations at any time of the day. You do not need to own the underlying asset or acquire any rights relating to the underlying asset you choose to trade. CFD gives traders a flexible method of trading against price movements.

Basic Trading Strategies

The CFD market has grown exponentially in popularity because it offers investors a plethora of benefits. These include the ability to trade 24/7 and short-trading for quick profits. However, it is not without risk. It is important to do your research before delving into it.

You will need to build a trading plan and develop a strategy that works for you. A strategy helps you to create your methodology for entering and exiting trades. It also helps you to be consistent and avoid making emotional decisions.

  • Day trading
  • Position trading
  • Scalping
  • Swing trading

1. Day Trading

Day trading involves buying and selling assets within one trading day. It takes advantage of small price movements to gain quick profits. You can place your trade and close it before the trading day is over.

2. Scalping 

This strategy involves opening and closing positions very fast. The trader hopes to make profits from the small changes in the price of an asset. It is an ideal trading strategy for the busy executive with barely enough time to trade. 

3. Swing Trading

The trader predicts where the market is most likely to change direction. They then enter their trade and hope to make a profit from the price movement. If it moves in the expected direction, then the trader will make a profit.

The trader predicts where the market is most likely to change direction. They then enter their trade and hope to make a profit from the price movement. If it moves in the expected direction, then the trader will make a profit.

  • Your personality
  • Your lifestyle
  • The amount of time you spend trading

The best trading platforms will start you off on a dummy account. This account allows you to practice trading. You can try out several strategies and experience trading CFDs without risking your funds. Once you get the hang of it, you can get the real account and hit the road running. 

How to Create Your Trading Strategy

A market analysis will guide you in creating your trading strategy. It provides you with information you will need to predict or foreshadow the behavior of markets.

This helps you in creating your entry and exit points. There are two categories of market analysis which are:

· Technical Analysis 

Technical analysis looks at the past behavior of the market. The idea is that what happened in the past could very well be replicated In the future.

A seasoned trader looks at the charts closely and uses the information therein to build a trading strategy. They will design a system that uses or utilize is price buttons to make a profit.

· Fundamental Analysis

A trader identifies assets that are overpriced or underpriced. They will then take advantage of the market correction. The trader relies on information such as: 

  • News coverage 
  • Political commentaries 
  • Employment statistics
  • GDP figures

Conclusion

Short term trading is very popular with traders who mostly want quick profits. It allows you to enter and exit your trades in record time. While it is an exciting way to trade, you must be careful not to overtrade or risk too much capital.