• March 11, 2022

Mastering short-term trading strategies in CFD trading

Mastering short-term trading strategies in CFD trading can be an incredibly lucrative source of passive income for capable and persistent traders. First, it is essential to understand what a CFD is. A Contract for Difference (CFD) is a type of derivative instrument that allows individuals to speculate on the price movements of certain assets without actually owning them outright.

 

If you want to profit from a particular asset’s rise or fall in value, then this is one way to do so while minimizing the risk that usually comes with buying and selling securities.

Stocks and currencies

While CFDs carry a certain amount of risk, the short-term trading strategies presented here do not require traders to hold on to their positions for long periods and thus reduce (though don’t eliminate). The two most commonly traded instruments through CFDs are stocks and currencies.

 

Most brokers allow traders to open an account with as little as $200, which makes this method accessible even for those who only have limited funds at their disposal. Although some brokers offer free demo accounts that can be used to test out short-term trading strategies before putting real money on the line, there is no substitute for experience.

 

If you are serious about trading, you should invest at least a little bit of your own money.

Relative Strength Index (RSI)

The first short-term trading strategy that we will explore works best with stocks and, perhaps surprisingly, is based on the simple principle of following smart money. It is no secret that some investors are better than others at timing the market, which may lead to an imbalance in supply and demand for particular companies or their securities.

 

As more people attempt to sell (or buy) undervalued (or overvalued) securities, the price of those securities shift accordingly, causing the price differences between what buyers are willing to pay versus sellers demanding to be paid to diminish significantly.

 

By keeping track of this disparity, it becomes far easier to determine when these imbalances have reached levels that warrant taking action. Implementing this strategy is by using the Relative Strength Index (RSI).

Economic news releases

The second short-term trading strategy that we will explore deals with currencies and requires traders to pay close attention to economic news releases as they occur in real-time. This method revolves around something known as supply and demand.

 

For those unaware, economics deals primarily with how humans choose to allocate limited resources or goods that they desire but cannot always have. Some items such as food, water, gasoline, etcetera are considered essential for human survival, while others such as luxury cars, high-end clothing, exotic vacations, etcetera are not.

 

Suppose a product’s supply is low and consumer demand for that good or security is high. In that case, the price tends to rise as people compete for access to limited quantities. This same principle can be applied to currencies.

 

If traders know when a currency will experience high supply levels and strong demand from investors, they can take advantage of this knowledge by using CFDs and options positions such as straddles, strangles, etc., spreads.

Swing trading

Some people employ a short-term ‘swing trading’ strategy, which involves buying and selling shares within a shorter time frame, generally holding them for a few days at most. The aim here is not to try and catch every market movement but instead profit from the bigger ones by spotting price trends.

 

It’s also possible to use CFDs to take advantage of ‘intraday swings’ – fluctuations that happen each day when the markets are open. It means you’ll have plenty of opportunities to cash in on any big moves during regular business hours, even if they’re held for only a matter of minutes or hours!

In conclusion

Hopefully, you now have a better understanding of what they are and how they might be used in your trading plan. For more information on these and other short-term trading strategies, along with how to use them in conjunction with CFDs, please follow the link provided below.