What Are The Different Types Of CFD Trading Systems That CFD Traders Use?


There are different ways CFD systems are described. This is not a recommendation that these are good or suitable for you. It is just to get you used to the terminology:

1. Trend Following Systems

These were made known by various traders including the Turtle Traders. These systems look to trade with an established trend, and not against it. Generally they want to get into a long trade when the price is going up in the long to medium term, or to short a CFD when the stock price is trending down. These systems aims to "cut losses short, and lets the profits run". Trailing stops are generally used and the trade exits when the share or stock price goes against the direction of the trade, thus stopping the trade out.

2. CFD Day Trading and Short Term Systems

These are similar to the trend following systems except they are generally shorter term. Instead of staying in trades for weeks to months, these trades may only be a few days or a few weeks in duration as they aim to capture the smaller up movements in the CFD price within the larger up movements in price. Day traders are in the trade for less than a day and are looking to profit on smaller moves in the market. These systems will take more time to trade per day and may need to be next to the screen for a few hours a day.

3. Mean Reversion Type Systems

These systems rely on the premise that when stock prices go away from the mean, and is stretched out so to speak, then it is likely to return to the mean. They are also called 'dip buy' systems. So for example, if a stock is going up, and then for short period is falls a significant enough distance from the expected path, that it a decent retracement, then this kind of CFD system will start triggering buy signals. Then the strategy will wait for the price to turn up (can occur immediately if the system triggers well, or a few days later after a few more days of further retracement) and aim to exit the trade after the price goes back up.

4. Break Out Systems

These systems look for signals that a stock is about to, or has broken out of congestion or trading range. Instead of say a trend following system where a stock has been already moving in one direction for a while, it aims to get into the moves early. Some of these systems use price chart patterns to look for an early indicator of price breakout, and some also wait for a confirmation with a break out of congestion before entering.

5. Swing Trading

This is a term that is used to describe traders who trade in a time frame of a few days. They aim to exploit smaller moves in the market as the stock goes up or down, instead of when not moving or when sideways. They would ideally pick the very top and the very bottom of a swing in the chart, but of course this is often not possible. Chart patterns and indicators are used to signal when to enter and the aim is to get in on the movement to exploit this movement in the stock price.


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