If you are new to CFD Trading it can be a good idea to start slowly, with a relatively simple trading strategy that focuses on your current market knowledge and understanding.
By analysing your early trading decisions and reviewing what works and what doesn’t, you can refine and improve your trading plan as your market knowledge and confidence evolves.
In this section we’ll look at a few trading strategies, tips and ideas that you can use to start trading with confidence. Our guide to CFD trading will give you the basics from which you can then build a more comprehensive, detailed trading strategy.
Analysis, research and developing market insights
When it comes to financial trading one of the most powerful tools at your disposal is market research and understanding how to use this as part of a wider trading strategy.
Information and understanding of a market is crucial to making good trading decisions and you should subject all of your potential trading ideas to vigorous testing against the insights and trends thrown up by your research.
Market research falls into two main categories; Technical and Fundamental analysis.
Traders who rely on Fundamental analysis to guide their trading decisions are generally looking at the “real world” bigger picture when it comes to analysing the events and factors impacting price movement.
Fundamental analysts look at things like economic data releases, central bank decisions, changes to supply and demand norms, major political speeches, votes and decisions and wider market events which could drive volatility. For a look at some of the types of events that impact specific asset classes, see our individual market pages for more information.
A good starting point for tracking events like regular economic data releases is a comprehensive economic calendar which can help you anticipate things including central bank decisions, major company reports and the latest employment figures.
On the other hand, traders who prefer Technical analysis look at the markets from a more granular perspective and rely predominantly on chart patterns to anticipate potential future market movement.
Technical analysts employ tools such as indicators to plot market movement and compare trends and chart patterns to similar circumstances and conditions in the past in order to evaluate how and why a market’s price may move.
A Technical analysis approach can offer powerful market insights into why trends develop, how sentiment could be impacted and which way market momentum may develop, all of which can help in identifying key trading opportunities.
At ETX we offer a number of specialist chart types, precise drawing tools, indicators and more to help technical analysts track market movement and make informed trading decisions.
You may find that a combination of both Fundamental and Technical analysis gives you even greater insights into market movement and it could be valuable to use both approaches. No matter which approach you take, you should always stay up to date with the latest news and analysis around the market you have chosen to trade.
Building the basis for a long term trading strategy
When you first start trading CFDs your trading strategy need not be overly complicated or extensive, in fact it can be beneficial to start simply with a strong trading idea and the right justification for entering the market coupled with a clear exit strategy.
Planning your trade is important and you can learn a lot from analysing your own performance. To this end part of putting the framework in place for a more comprehensive trading strategy is tracking your progress and detailing the rationale behind your trading decisions, as well as noting the prevailing market conditions when you first opened your position.
Many traders, even very experienced ones, keep a trading journal so that they can review past trading decisions and isolate the most positive and negative aspects of their trading strategy. Keeping a record like this will also help with determining your risk appetite and can be useful when weighing up similar trading opportunities that come up in the future.
Try keeping a journal of your CFD trades that include key trading information about the following:
- Actual Profit/Loss incurred
- Duration of trade
- Original profit target/loss level
- Rationale for opening trade based on research
- Trade size and trade direction
The greater the level of information you include the better as this will give you more data points in the future should you want to review a potential trading opportunity against one that shares similar characteristics.
Once you have built up a trading journal that reflects the type of trades that have worked for you, you will be able to more easily identify the type of market conditions that could be favourable, as well as those that could work against your trading goals or particular approach.
These types of insights and information will be exceptionally valuable to you as you build a more comprehensive trading strategy based on the types of ideas and rationales that have worked for you and which you feel most confident with.