Short Term Trading Strategies For CFD Trading
November 11, 2016
Short term CFD trading can carry a lot of benefits for the trader who is looking to benefit from a faster paced market. Online trading platforms like CMC markets make it easier for investors to benefit from profits on CFD’s on not only daily, but hour to hour and minute time frames.
Is CFD short term trading for me?
Short term trading in the CFD market is speculative, and obviously comes with risk. If you are just starting to trade online, or dip your toes into investment markets, then this is something that you may need to consider carefully.
If you are used to trading and comfortable with CFD’s in general, then there is no reason you cannot take advantage of short term trading strategies and have a quicker profit turnaround.
High Volatility Periods
Speculative short term trading works best for CFD traders when the markets are uncertain. Because CFDs are bets on what the markets will actually do rather than an investment, money can be made either way. This is why a lot of traders who are trading CFD’s will take advantage of uncertainties like IPOS, mergers, and takeovers.
Company news is usually released officially quite some time after initial speculation, but if the market is played correctly the speculation itself can gain a CFD trader profit before any official announcement.
Quick in and out
The beauty of trading in and out quickly is not only that it gives the positions less time to move drastically, but if you opt to cash out before the trading day closes you could also eliminate some of your costs. Although it has happened in the past, it is unlikely that an entire market will collapse during the course of the day, so keeping your trading time frame short can actually help you to eliminate some of the risks associated with CFD trading.
You can also save yourself from overexposure to markets by keeping your positions in them brief. CFDs are a naturally leveraged product, which means that investors have more hope on short term profits with them than other markets.
Pairs trading is slightly different from the average short term trading strategies employed by people who trade CFD’s. When the direction of the market is a little bit more uncertain than usual, this method of trading can often help the trader feel more relaxed about entering into the market.
Pairs trading involves the investor going long in one market, and then short in a similar market. This gives the investor a certain amount of back up. When you chose a market, you will trade CFD on two companies that are more or less similar, so you may go long on HSBC but short RBS.
This gives you the advantage of being able to take out a long CFD on a company that you have researched and believe may be undervalued, but simultaneously go short in a company that you feel may be very overpriced at the same time.
Trading in this was does not ultimately reduce risk significantly, but it is a good way of trading in a market and making a profit whatever way the market in general goes.
In the CFD market, swing trading occurs when investors attempt to benefit from smaller reversals in larger trends, or ‘swings’. When a price goes down in a market that is on the rise continuously, it is likely that this is just a blip and the stock will bounce back and continue to rise. CFD traders who are using a short term strategy, if clever enough can identify this and take advantage of it to make short term profit.
The only drawback of this is that it can be hard to discover when the ‘swings’ are about to occur, but if you are trading CFDs in a market you are considerably familiar with, you will be able to at least identify what markets are on the rise. The good thing about CFDs is that as you are trading on ‘bets’ this strategy can be adapted to either a bull market or a bear market.