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

As we’ve already mentioned, trading different CFD system types, not just similar variations of the same system can help a CFD trader to smooth out their equity curve, to vary their market risk as well as to make their trading more robust.

This is a great thing about CFD trading online in that you can apply different CFD trading systems and see them perform.

The first step is to know what these system types are, so you can eventually learn good systems that trade these different types of price actions, and different types of movements in the market.

There are different ways CFD systems are described. A very helpful way of describing them are these:

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. 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.

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. 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 exit the trade after the price goes back up to make a profit.

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.

So keep these system types in mind when looking at CFD trading systems and be aware that there are different systems types available, and that you many want to learn more than one type of these system types.