Contract for Difference is a highly complicated trading instrument. If you are planning to make use of it, you should know the four trading strategies that you are bound to use.
Position trading, swing trading, day trading, and scalping –are the trading strategies used when dealing with trading CFDs. Depending on your desired timeframe as well as the period of your trades, you can choose among these trading styles.
Scalping is known to last for a short while only. Traders using this strategy hold their positions open for as short as seconds to minutes. Scalping is targeting short trades that take place during the day before the market closes. The main goal of scalp traders is to make small frequent profits that can accumulate throughout the entire trading day from the number of trades that they execute.
Liquid markets and tight spreads are mostly required in scalping and only trade major currencies such as GBPUSD, USDJPY, and EURUSD. Scalp traders see to it that they trade only during the busiest time of the day, during times when there are more trading volume and volatility. This fast-paced trading style is definitely not ideal for all types of traders. If you cannot allocate much of your time to trade or if you have other corporate jobs to attend to, this short-term trading style is definitely not for you.
Some traders think that scalp trading is too intense for them. In this case, day trading is a better option to take. It is not as intense as scalping and also does not allow overnight trading.
Similar to scalping, day traders are able to enter and exit their trading positions within the day to avoid all forms of risks brought by overnight trading. At the end of the trading day, they should close their positions and get their profits or losses to avoid overnight fees. This trading style requires strict monitoring throughout the day as positions can last for a couple of minutes or hours. The most useful technical indicators used in day trading are Stochastic Oscillator, Relative Strength Index, and MACD or the Moving Average Convergence Divergence.
Day traders and scalpers hold their positions within seconds to a day. This time swing trading allows holding of positions for days or even weeks in some cases. Since swing traders are holding their positions for some time, they don’t have to sit and monitor their trades for the entire day. This is a popular trading style for traders who are tied to other commitments such as corporate jobs and other full-time jobs.
Another trading CFDs strategy is Position trading. It is a long-term trading strategy just like swing trading. Traders here can hold their trades for weeks or even months. There are also traders who are willing to go for years on this trading style. Traders doing position trading are mostly not concerned with the minor price fluctuations in the market. They are also not monitoring their positions the entire day.