Online CFD Trading offers the potential for many different strategies. Anything from directional, to partially directional and even insured, hedged trading.
This article is originally referred from XTrade Official Blog.
Online CFD Trading is Versatile and Dependable
Online CFD trading is very versatile because of its unique benefits. As it allows traders to profit from even tiny moves in the market, in almost all volatility conditions.
Brokers facilitate high quality trading through their CFD trading platforms. And the kinds of traders that use CFDs range from careful, patient as well as impatient beginners to more advanced traders. Including even very sophisticated hedgers.
The potential of CFDs together with the potential of a good but not necessarily very good strategy, leads to success. Traders only need to be right on direction about 50% of the time, or even less. And they can still trade for a living. Except that trades need to be larger, better focused and calculated. So that winning trades yield a 10% or 20% gain. And losing trades are identified early, and are either closed or hedged against.
There is no need for ultra low risk-reward ratios, and such nonsense that many trading experts will have you believe. What is really needed in wise CFD trading is a realistic approach, going for the low hanging fruit. Which is that 10% or 20% profit per trade. And even these trades may require market exposure of more than a single day.
Therefore the myth of overnight market risk should also be avoided.
How to Build a Solid, Safe Trading Strategy
New traders, as well as former losing traders need to focus whilst taking trading lightly. And they should refrain from having the urge to win there and then.
An early good strategy can be based on trading from Tuesday through to Friday. By not trading on Mondays, it helps traders stand on the sidelines while the accumulated market volatility plays out on Monday. Following the two days of weekend.
Where there may be a divergence between market price and the price that market participants want to see. Traders should pay attention to active market trading hours.
It makes no difference what market they choose to trade. They should aim to hold trades overnight, and for at least some decent profit. Confusion and volatility are to be expected, so a kind of plan B trading idea must be on standby.
So that unidentified losing trades can be temporarily hedged, until excessive uncertainty goes away. This requires maintaining sufficient funds in the CFD trading account. And also avoiding the desire for putting too much money in a single trade. Typically, the market tends to go where you might expect it to go.
But only after moving against you for few days and by a good price margin. And this is where another classic tip is called into question.
That of never adding to a losing trade. As with all things, the financial markets are not black and white, so black and white trading tips are not useful. In many cases you actually have to add to a losing trade. Moreover, online CFD analysis on the market in question, can help hedge the losing trade very well, and lock the open loss.
How to Identify a Losing Trade and Deal with it Early
Online CFD trading can be enhanced much further if one uses notional stops in the time domain. Probability dictates that if it takes too long for a trade to become profitable, then likely, it never will. And should be closed even if the trade is at break-even or at partial profit when the notional time stop has elapsed.
The trick is defining the exact time period past which a trade should be seen as a loser. And this can be inferred from studying past daily charts and volatility. In the case of week to week trading. A trade may be a deceptive loser for many hours to few days, and then turn around.
But most markets actually do have time limits of around 3 to 5 trading days. So a losing trade which is one day old should be temporarily hedged against or checked again more thoroughly. Whereas a losing trade older than the perceived time limit, say 5 days, should be either closed or maybe hedged for much longer.
The exact action required depends on what the daily chart suggests about market direction. And in most cases carefully selected notional stops in the time domain do help in closing losing trades very early.
Then there are trades which harder to identify, but a closed losing trade can always be opened again, at a much better market price. Online CFD trading can be dramatically more profitable through these methods for dealing with risk.
Original Source: XTrade Official Blog