Imagine trading something you don’t own, but you make money off of your guesses about whether its price will go up or down. That’s what CFD trading is. And while it might sound simple, it’s not so much so in practice.
Most beginners either jump in with zero plan or copy someone else’s strategy and call it a day. But if you want to actually trade CFDs with a chance at winning, you need strategies that make sense for how this market works.
Let’s break down CFD trading strategies that actually work.
Trend Following
One of the most popular strategies in CFD trading is trend following. What you do here is basically hop on a moving train and hope it doesn’t stop too soon.
Here are the steps:
- Identify a trend using indicators like moving averages.
- Wait for confirmation in the form of a breakout or a pullback.
- Enter your position in the direction of the trend.
Also, don’t ever forget to set your stop losses.
Breakout Trading
Breakouts happen when an asset moves outside of a known support or resistance level. It’s the moment when prices go somewhere new.
To use this strategy, you have to know how to:
- Use support and resistance lines or volume spikes to spot potential breakouts.
- Set a buy order just above resistance or a sell order just below support.
- Confirm the breakout with volume.
Breakouts are how traders catch the beginning of a sideways move. CFDs make this strategy even more appealing because you can profit from both directions.
Range Trading
Sometimes the market is neither trending nor breaking out. This is when you use range trading.
What you do is:
- Identify a range. It could be an upper resistance line or a lower support line.
- Buy near support, and sell near resistance.
- Use the Relative Strength Index (RSI) to confirm conditions.
Just make sure to avoid this strategy during major news events. It only works in calm and stable conditions.
News Trading
CFD traders love volatility. And nothing brings that like surprise news or economic releases.
To trade the news:
- Monitor a calendar of economic events, like interest rate changes or employment reports.
- Anticipate how the news could and might affect specific markets.
- Trade the reaction. This way, you’re not trading the news itself.
Markets are known for reacting to news. If you stay calm, you can catch big movements without going into panic or emotional trading.
But remember that this strategy is a bit on the riskier side, so have your exit plan ready.
Swing Trading
If day trading feels too stressful for you and long-term investing is too boring, swing trading is the perfect middle ground between the two. You have to hold positions for a few days or weeks.
To try swing trading, you have to:
- Use technical analysis to identify potential patterns.
- Hold your CFD position based on market trends, momentum, and indicators.
- Set stop losses that are wide enough to allow natural market fluctuations.
This strategy gives your trades enough room to breathe while still allowing you to react faster than long-term investors.
