Forex CFDs Trading Strategies

The giant, always-moving global foreign exchange market is analyzed countless different ways by the millions of traders that participate daily. Currencies can be traded using strategies like those employed with any other asset, including both fundamental and technical analysis methods. However, there is no single best trading strategy for forex, so the best option for most traders is to find an angle that suits their trading style and expertise.

This requires some testing and research. We advocate for traders to educate themselves thoroughly before attempting to trade Forex/CFDs, and even after attaining basic knowledge, they should first test their strategy in a demo account. One of the first considerations is how long you’d like to hold an investing position open. Are you good at identifying short-term trends, or broader movements over medium to long-term timeframes?

1. Short-Term Trading Horizon: Day trading and scalping are trading strategies where a trader is typically holding a position, whether short or long, for less than a day.
2. Medium-Term Trading Horizon: Swing trading is the term used to describe the strategy where traders hold trades for multiple days, and sometimes up to a week or two.
3. Long-Term Trading Horizon: Traders who plan on holding a position for a long time are rarer, because this is considered investing more than trading. For long-term trades, technical analysis typically matters less than the fundamental features of the asset in question.

Technical Analysis in CFDs/Forex

Traders employing technical analysis methods see price action as non-random, meaning that some force or catalyst can be identified as the reason for a movement up or down. With a focus on what’s happened in the past, technical analysis seeks to predict future price action, and it does so using a vast array of tools that help traders visualize the relevant trends. Some of the most common technical analysis techniques are:

1. Trend Lines: Traders commonly use straight lines, drawn on the chart, to connect historically significant prices. The bottom of dips and the top of peaks are typically connected by a trend line, to show where the ‘range’ is. This is the area where the asset is likely to remain in the short term.
2. Moving Averages: The average price of a currency pair is calculated over a specific number of days, like 30, 50, or 200, and then illustrated on the pair’s chart. Traders usually add several different moving averages to their chart to see how trends are moving from the short to the long term, and how the lines intersect or rebound off one another, which indicates a change.
3. Relative Strength Index: The RSI is a momentum oscillator that shows the momentum behind price action up or down. It ranges between 0 and 100, which indicate oversold and overbought conditions, respectively.

Fundamental Analysis in CFDs/Forex

Forex is one of the most suitable markets for fundamental analysis. While other CFD trading commonly concerns analysis of companies and specific industries, forex is more about currencies and therefore seeks to uncover trends in macroeconomics. The changing relationships between major government powers around the globe are also studied closely, to hint at how these countries’ currencies will perform over a specific time horizon.

Tips for CFD/Forex Traders

1. Have a Game Plan
   The most successful traders always come prepared to trade, and that starts with having a reason to get involved. A catalyst, technical pattern, or other feature may provide the rationale for getting involved with trading a forex pair and taking a position should always have a reason. Afterwards, it is essential determine how much investment capital will be risked for the potential upside of a trade. Reward should always outweigh risk. Next, determining the entry point and exit strategy should also incorporate the risk and reward determined earlier. Finally, a trader should always be disciplined and stick to the game plan when trading CFDs on forex to avoid any deviations that may prove costly.
2. Employ Risk Management Tools and Set Alerts
   Monitoring the foreign exchange market around the clock is very challenging. With a market that moves 24 hours a day, watching every move tick by tick is in every forex pair is near impossible. Thankfully, trading platforms are accompanied by helpful features like risk management tools and alerts. With stop-loss and take-profit functionality, traders can preprogram their exit strategies when entering a trading order (although a stop-loss order may not always limit losses to the stipulated amount), helping automatically trigger an exit from a position once certain conditions are met. In addition, alerts can be set once an asset reaches certain price and time conditions, helping notify traders in the case that conditions are met.
3. Stay Up-to-Date
   Foreign exchange markets fluctuate around the clock, and oftentimes there is a specific stimulus that sparks a move in one direction or another. To ensure you don’t miss out on the latest opportunities, consult daily with the economic calendar for an up-to-date look at when economic announcements are set to be delivered. In addition, stay informed about current geopolitical events that could sway the market’s direction by regularly following business and financial news media coverage.