Technical and fundamental CFD trading strategies

  • By Carole Ann Furman

  • June 26, 2018
  • 1:46 am BST

If you’re just getting started as a trader, you’ll need a bit more than basic CFD trading knowledge and an account. In order to be as successful as possible, you need a set of clearly defined trading strategies to start you out in the right direction. While the first secret is to treat trading as a business to maintain the cool and detached mind-set necessary for success, there are many other tactics that weathered traders use to flourish.

Strategy categories

Trading strategies can be separated into two categories: fundamental and technical. Fundamental trading refers to the close analysis of a company’s fundamentals, such as their reputation, positions, cash flow, returns and their profit or growth history. It can also be useful to look at their executive team and find out more about them. This method is usually used for long-term trading rather than the short-term.

Technical strategies, on the other hand, have their own subsections depending on your investment goals and can be used as CFD trading tips.

Technical breakdown

The first technical strategy is essentially mechanical and low maintenance. Through range trading, you can put steps in place that will automatically react to the market changes depending on the criteria you set. For example, you might set a price cap for various stocks so that, when your investment reaches that prices, the system will automatically buy or sell on your behalf. Technical trading also includes discretionary trades, whereby you will analyse trends and positions to guide your decisions.

Discretionary methods

The breakout method uses the concept of monitoring the changing price a stock and setting a key level to indicate when you should buy or sell. The best way to use this method successfully is to only buy or sell when there is a clear signal from the market, with a clear understanding of how the movement of the trends work.

A method used to time the markets is called contrarian investing. This focusses on the time period of certain trends, bearing in mind that none of them are ever permanent. The general move is to sell or buy on the prediction that a pricing trend will change direction once it reaches its highest or lowest point.

Trend following is used in long-term trades, working closely with the concept of “buy and hold.” You might hold onto a stock for weeks or months until a trend has completed its course. When the trend has reached what you think to be its peak, you will then close your position.

Rebate trading is often available through certain trading networks. Although not used very often, rebates can bring in high profits as the trader will focus on the returns rather than increasing prices.

When traders use the differences between the bid and ask price of a stock, it is called scalping/ spread trading. This strategy focuses on small profit opportunities as you identify gaps and make multiple trades throughout the day for small but steady gains.

Swing trading is a theory that monitors the changing patterns of the price movements over a certain period of time. This method is usually used for short-term investments, but can also be used over a longer time scale. As the trends move and change directions, you can track this pattern and use the results to make calculated trades.

The last trading strategy essentially takes advantage of opportunities. This strategy, called news playing, literally involves following the news of the markets and learning how to predict the influence these events will have on stocks.

These methods do not work for everyone, and each trader needs to experiment to find which combination of tricks will benefit them the most. Careful observation and analysis are the foundation of these strategies, as well as continuous learning to improve your understanding. After some thorough research and practice, you will find the method that is best suited to your future success.