There are a couple of strategies that beginners can use in CFD trading. But before anything else, it is important to understand the meaning behind CFD.
What is CFD?
The contract for Difference (CFD) is a contract made by a broker and a trader. It aims to leverage the price of an underlying asset without even purchasing the asset and spending a large amount for it. A trader opens a trade by entering a contract. After that, the entry and exit points are specified and the trader will predict if the price will fall or rise.
By the time the contract expires, the trade also closes. The broker or the trader will have to pay the difference between the opening and the closing price. If the price movement is towards the trader, then the broker will have to pay for the difference of the opening and closing amount or vice versa.
CFD Strategies for Beginners
Now that you’ve known the meaning and how CFD works, it is time to know the strategies that you can use to succeed in this field.
Find a Good Trading Strategy and Stick To It
If you have a trading strategy, you can trade efficiently. Also, you can eliminate emotions that could hinder your trades. Trading with emotions will only cause disaster. But it is easier said than done. Controlling your emotions while seeing that your trades are failing is such a tough thing to do.
Naturally, you will panic and even close the trade without thinking of the consequences. During these times, your trading strategy comes in handy, and sticking to it is a must. No matter what happens, don’t get swayed by your emotions.
Stop-loss and Take-profit
Known as a primary tool to reduce your losses, stop-loss must be properly used to reduce your exposure to trading risks. Every time a trader opens a trading position, he should add a stop-loss to the trade. When calculating the stop-loss, make sure to calculate the maximum amount that you are willing to lose in every trade you take.
As for the take-profit point, it is the opposite of stop-loss because it has an opposite effect. This is the point when you can opt to exit a trade. Just like with the stop-loss, it is important to remember that you must use take profit value in all of your trades. Once again, one of the simplest forms of determining the take profit value is by working out the percentage that you make in every trade.
Trades Must Run As Far As It Could
Let your trades run as far as it could so you can benefit with the maximum profit without the need for price swinging right in its opposite direction. Aside from working with the stop loss as well as the take profit, another complexity in CFD trading is attributed to the determining of the point that deems not beneficial.
The only way to work this out is through the use of trading signals or by the number shown on technical indicators such as Relative Strength Indicator (RSI) and Bollinger Bands Indicator.