CFD Strategy -Contracts for Difference (CFDs) and Trading Strategies

The best trading strategy is the one that suits you individual risk tolerance and your available time.

CFD Strategy

What are CFDs?

CFDs offer a simple and efficient way of trading the global financial markets. That includes Forex, equity, cryptocurrency, and commodity assets. A CFD contract mirrors the price movements of an underlying asset and allows investors to trade in both directions. 

Categories of CFD Trading Strategies

Most people anticipate that there is a single best trading strategy that can lead everyone to success. That is certainly not true, the best trading strategy is the one that suits your own risk profile. There are tens of different CFD trading strategies covering all risk profiles.

Main categories of CFD Trading Strategies:

Introduction to High-Frequency Trading (HFT)

High Frequency Trading (or HFT) in general is part of the electronic trading. This type of trading uses complex algorithms to analyze and to evaluate multiple markets simultaneously. Based on the market conditions High Frequency Trading systems are executing tens of orders in a matter of seconds.

 Based on the market conditions High Frequency Trading systems are executing tens of orders in a matter of seconds.

The High-Frequency Trading Domination in the US

High-Frequency trading systems open and close positions in a fraction of a second and form the million-second markets. These Fast-Markets are extremely liquid and can highly influence all real Equity Markets. It is estimated that 50% of the total US stock-trading volume is driven by computer-based high-frequency trading systems. Others believe that today the activity of HFT exceeds 65% of the total US stocks activity. High-Frequency Trading has become very popular nowadays. There are hundreds of new start-up companies worldwide focusing exclusively on exploiting opportunities deriving from this lucrative market. Only in the US, the High-Frequency Trading industry is estimated to worth about 300 billion USD. In overall, there are more than 20,000 firms in the US that are specialized in high-past computerized programs for trading stocks. The most important players in the HFT industry according to the Deutsche Bank are:

i) Multi-Service Firms: Citigroup and Goldman Sachs

ii) Hedge-Funds: Citadel and Renaissance Technologies

iii) Trading Firms: Getco, Optiver, and Tradebot

Why HFT makes Investors and Regulators Skeptical?

On May, 6th 2010 the Dow Jones Industrial plunged 600 points in just five minutes. This is the so-called "Flash Crash" of 2010. The DJIA after the 400-point drop was able to recover within 20 minutes and closed the day about 3.0% down. High-Frequency Trading held responsible for this abnormal DJIA behavior and since then HFT made everyone skeptical about the future.

Trading Strategies –The 3-Elements Concept

Applying a strategy is ‘everything’ when you trade the global financial markets. The implementation of the right trading strategy is what really distinguishes winners from losers in the long-run.

“Trading Luck suddenly ends and there starts a Trading Strategy”

Applying a strategy when you are trading means building a system of knowing always what you must do next. If you want to evolve into a profitable trader these are the three elements you must incorporate into every trading decision, these 3 elements together form a complete trading strategy.

 

The 3 Elements of a Trading Strategy

A Trading Strategy has 3 main elements:

1st Element: Asset Allocation / Trend Identification

The first element involves the process of selecting the right asset to trade by knowing also if you should go Long (buy) or Short (sell) the market. The trend evaluation procedure must be always in accordance with the timeframe you trade. If you are a day trader there is no point of trying to evaluate a long-term trend.

Alternatively, you can use this definition for determining the trend in any timeframe:

Rising Trend: A Trend is rising when a local High is higher than the previous High and at the same time the recent Low is Higher than the previous Low.

□ Falling Trend: A Trend is falling when a Local Low is lower than the previous Low and at the same time the recent High was lower than the previous High.

2nd Element: Trading Signals and Timing

After the asset allocation/trend evaluation process, the 2nd element involves the selection of time that you should trade. That means the time to buy or to sell the previously allocated financial asset. At this point, you must use an additional indicator capable of confirming the trend and capable of providing trading signals. A trading signal indicates the entry and exit levels of a potential trade.

You can use commercial trading signals for a monthly subscription fee: Compare EA Trading Systems | ► EA Builder Systems

Trading Forex using Fundamental Analysis

Trading Forex and Fundamental Analysis

The fundamental analysis aims to predict the future market conditions based on the study of current economic indicators and other fundamental data.

The Important Role of Central Banks

Central Banks play a key role in the Foreign Exchange Market, more specifically:

  • They are applying the monetary policy by modifying interest rates

  • They help governments to implement their fiscal policy objectives

  • They are responsible for controlling the domestic banking sector

Central banks have the ability to adjust the level of interest rates at any given time. Therefore, they can control the demand for the domestic currency and the exchange rate of the domestic currency against foreign currencies.

“Trading against the Central Bank policies is madness unless your name is George Soros.” 

8 Major Categories of Fundamental Data

These are the eight (8) categories of fundamental data that are highly affecting the Forex markets.

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Cryptocurrency Tutorial

Learn how to trade cryptocurrencies like a pro...

Trade Systems

A trading system is a set of specific processes and rules that can help traders to optimize their trading process, or to develop automated trading strategies (EAs):

» EA Builder for MT4, MT5, and TradeStation

» Compare EA Systems

» Market Sentiment

» Forex PAMM Accounts

Strategy Quant for Automated Strategies

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