CFD Trading Strategies

As a trader, you should have a good strategy to trade with. A good strategy should have two elements: good entry and exit rules, and good risk management rules.CFD Trading

When choosing a strategy, there are several options to choose from. Some traders like to trade frequently on a daily basis, while others prefer to place an order and forget it for a couple of weeks. Regardless of which kind of trader you are, there are good strategies you can implement, and which will hopefully lead to a positive performance.

The following strategies work on both short-term time frames and long-term ones.

  • Trading the breakout.

Trading the breakout is generally considered a counter trend trade, which means that you trade against the direction of the most recent trend. This is done based on clear signals that indicate that the market direction is about to change. The most important signal here is the breakout.

To be sure that a breakout has taken place, you need to draw a trend line. You should draw the trendline so that it touches three previous tops or bottoms.

The following chart of USDJPY, 4H time frame shows a clear breakout pattern. The price reached a top three times, and then it broke through the trend line, which was a clear signal. It is often better to combine the breakout signal with a signal from an oscillator (such as the MACD, RSI, or others) to ensure momentum.

You can place the stop loss under (or above) the previous trend and place your target profit level at double the distance.Trading CFD

  • The moving average strategy.

In this strategy, you will need a moving average, such as that of 50 periods or 200 periods, and a candlestick chart. Before entering, wait for the price to show a clear strong candle either downwards or upwards, and which touches the moving average. You can see an example below.Trading

In the example above, you can see how the candle on 5/7/2020 was strong bullish as it closed at the higher end, and it touched the moving average at the lower end. It is important to ensure that the candle has touched the moving average before entering. Often this candle precedes a trend. The moving average used in the picture above is the 50-period moving average on a daily chart. You can apply the same strategy on different time frames such as the H1 time frame or others. You can place the stop place under the candle and put the target profit at double the distance.

  • The Ichimoku strategy

The Ichimoku is a powerful Japanese indicator, and it relies heavily on moving averages. The Ichimoku is mostly known as the cloud indicator as it shows you a cloud shape on the chart once you draw it. To simplify matters, it is better to think of the Ichimoku cloud and lines as support and resistance levels. If the price movement seems strong and it has cleared all the Ichimoku levels (upwards for example), then you can expect that the price will likely continue to move up supported by all the elements of the Ichimoku indicator.

It is important to use this strategy on trending instruments, rather than instruments that are moving in sideways, as the Ichimoku is designed for trending markets.

The above strategies should work on most CFD instruments and can be applied with most providers, easyMarkets being one example of a broker that supports charting tools that can help you implement strategies. These strategies should also work on most time frames. Regardless of which strategy you use, good risk management practices are essential, and you should never trade without them.