Are you new to the world of CFD trading? Struggling to get started? If you answered yes to either of those questions, this article was written with you in mind and should help you find your footing.
One of the biggest challenges new traders face is in developing a strategy that will help them make profitable trades in a reliable, consistent manner. With that in mind, here are two simple, but surprisingly effective strategies you can begin using, starting today! If that sounds good to you, let’s take a closer look:
Trade the Headlines
Here’s a two-question quiz for you: When the Exxon Valdez oil spill happened and was reported on the news, what do you think happened to Exxon’s stock price?
When the BP Horizon off-shore oil rig exploded and started dumping tens of thousands of gallons of oil into the Gulf of Mexico, what do you think happened to the company’s stock price?
If you guessed “it went down,” on both of the questions above, you’d be right! Even better, the price didn’t drop instantly. There’s a natural, unavoidable lag between breaking news and the market’s response and if you’re paying attention, you can dive into that gap and make some money.
Don’t think that this strategy applies only to oil companies, and don’t make the mistake of believing this is simply “Disaster Investing.” It isn’t. If Tesla announces tomorrow that it has figured out a way to double the battery life of the batteries it uses in its cars and in the PowerWalls it sells for home use, you can bet that the company’s stock price will soar.
In a similar vein, if a company that makes 3D printers announces the creation of a “Hydra Extruder” that will allow you to seamlessly print with up to six different materials, or if Apple announces an exciting new product, those are all things that will make the company’s stock price increase.
It gets better, because there’s also a lag between the release of a company’s quarterly earnings reports and the market’s reaction to those reports.
All that to say, you don’t have to be a rocket scientist to read the tea leaves and have a pretty good idea about which direction the price of a given asset is going to move, you just have to be paying attention and be set up to take advantage of those signals when you see them.
There’s a reason that most brokerage platforms feature live, streaming news, after all, and the examples above explain why.
So – start trading the headlines. Have your account all set up and ready, then watch a lot of news. Read a lot of industry reports. Download a detailed financial calendar and be ready to pounce when you see that such-and-so company you’re interested in will be releasing this or that report.
Then act on what you read. Be one of the first movers and reap the profits for doing so! With speed and practice, you can use this simple strategy go make consistent profits.
This strategy requires a bit more research. Pick an industry you’re interested in. Pick two companies in that industry. Look at their price histories.
Since they’re in the same industry, generally speaking, you should see that their prices move more or less in tandem. Both go up, then both go down as the conditions in the market change. In other words, if it’s a “bad year for auto makers” then it’s a bad year for all of them. They all tend to respond the same way to macroeconomic changes. It doesn’t matter what the industry is, for the most part, that’s true. It’s just how the market works.
So, watch the market and watch your selected pair of companies.
If you notice that their price action begins to diverge, that’s a signal that it’s time to take action because you know, having studied the long term trends, that these companies tend to move more or less in tandem, which means that before much longer, that gap in price movement is going to start closing again, opening a short position in one, and a long position in the other, depending on which company seems to be the “weak link” driving the divergent behavior.
The reality is that there are all sorts of trading strategies you can use or devise, and as you gain more experience, you’ll no doubt come up with your own. But if you’re’ looking for a simple way to get started, thousands of investors have used the two strategies mentioned above to great effect, and you can too!