KEY TAKEAWAYS
- Discover trend following and range trading strategies
- Learn about the breakout strategy
- Understand risk-managed scalping
Contract for difference or CFD trading has become more popular with retail investors in the past ten years. Although many have found it hard to earn steady profits from CFD trading. Even, according to the ESMA report, between 74% and 89% of new CFD traders lose money.
So what can be done to overcome this problem and get consistent results? The answer is learning how to trade CFDs and use proven strategies that will work best for you.
Want to know what these strategies are and how you can use them in your CFD trading? In this article, you will discover 4 amazing strategies that will give you long-term outcomes and enhance your results.
The trend-following model is a staple for traders seeking consistent results. It entails determining the market direction, whether it is trending upward or downward, and trading in the same direction. The most important thing is to ride the trend rather than trying to predict reversals.
Moving averages, the RSI (Relative Strength Index), and the MACD (Moving Average Convergence Divergence) are some of the tools commonly used to verify the strength of a trend. This method is particularly effective in markets that exhibit directional movement, such as forex and major indices.
Not every market trend occurs at all times. There are occasions when prices fluctuate within a certain range. In range trading, it is mostly suggested to buy at the lowest point of the range (support level) and sell at the highest point of the range (resistance level).
The approach would be most effective in stable, less volatile markets. Indicators such as the Relative Strength Index (RSI) and the Bollinger Bands may be used to validate entry and exit points. Beginners may find a more manageable way to learn how price action behaves in various market conditions through range trading.
A breakout strategy is simply concerned with the opportunities that present themselves when the price falls or rises beyond a stipulated support or resistance level. Usually, this breakout signals the start of strong trending or increased volatility, both of which, if timed correctly, can be profitable.
To use this amazing strategy, mark consolidation areas and wait to record a confirmed breakout, preferably with higher volume. Place your stop-loss just beyond the consolidation area to minimize risk in the event of a false breakout.
Scalping is a repetitive buying and selling of trades with the aim of exploiting small price changes over the course of the day. Although this strategy requires discipline and quick decision-making, it can yield steady profits in highly liquid markets, such as the forex or major stock indices.
Tight spreads, low latency, and strict risk management are very important for scalping; without these, it can’t be successfully done. Scalawags tend to take marginal risks in terms of money per transaction and seek a regular, modest profit that will accumulate over time.
Consistency in CFD trading comes from strategy, discipline, and ongoing learning, such as trend-following, breakout trading, and scalping, depending on your risk tolerance and trading preferences.
Keep in mind that CFD trading comes with risk. Include risk management in your trading plan, and always remember that being patient is important for making good decisions. If you have the proper mindset and resources, you can succeed in the long run.
Ans: No, CFD trading is not easy even for professionals. CFDs are complex investment products that present a high risk of capital loss.
Ans: It is possible to trade CFDs in the long term by adopting a buy-and-hold approach.
Ans: Yes, you can day-trade without using CFDs by using other financial instruments like stocks, futures, or forex.
Ans: You can hold a daily CDF position as long as you want.
