Discover essential CFD trading strategies for beginners. Learn trend following, range trading, breakouts, and more to enhance your trading success.
The fast-paced global financial markets present numerous opportunities around the clock. However, without a clearly defined trading strategy and plan, the risks increase, and the probability of success declines. A good trading strategy helps traders identify quality, high-probability opportunities with attractive risk/reward propositions. While no strategy is perfect, consistency in generating more profits than losses is the hallmark of a successful approach. Here are five effective trading strategies for different market situations, illustrated using AvaTrade and Vantage Markets as examples.
1. Trend Following Strategy
A trend refers to the overall direction of prices in the market. If prices are making higher highs and higher lows, it is an uptrend; if making lower highs and lower lows, it is a downtrend. The trend-following strategy aims to trade with the market’s general flow, embodying the mantra, “The trend is your friend.”
Trend Trading with Moving Averages
Moving averages (MAs) are a powerful technical analysis tool. They are average prices of an asset over time and help traders identify prevailing trends and momentum. When the MA is rising, prices are in an uptrend; a steeper slope indicates a stronger trend. Traders use MAs as dynamic support and resistance lines, entering trades when the price retraces to the MA line. For example, in an uptrend, traders place a buy order when the price retraces to the MA line.
Multiple MAs can confirm trend reversals. For instance, if a 21-period MA crosses below a 55-period MA, it signals a downtrend. AvaTrade’s MetaTrader 5 platform offers robust tools to implement MA strategies effectively.
2. Range Trading Strategy
Markets do not trend all the time; they often trade within a range with defined support and resistance zones. A range trading strategy aims to buy at support areas and sell at resistance areas. The Pivot Points indicator is particularly useful for this strategy.
Pivot Points Trading
The standard Pivot Points indicator generates seven horizontal lines as reference support and resistance areas. Traders place buy orders near support levels (S1, S2, S3) and sell orders near resistance levels (R1, R2, R3). For example, if the price is between S1 and R1, buy orders can be placed at S1 with a take profit at R1. Vantage Markets’ ProTrader platform provides easy access to Pivot Points for effective range trading.
3. Breakout Strategy
Markets eventually break out of their ranges, embarking on new trends. A breakout strategy aims to ride a new trend from its onset. Bollinger Bands is an effective tool for this strategy.
Bollinger Bands Breakout Strategy
Bollinger Bands contain prices between their upper and lower bands. A squeeze, where the bands converge, indicates low volatility. Breakouts, marked by the divergence of bands, occur during high volatility periods. A bullish breakout happens when the upper band is breached, and a bearish breakout occurs when the lower band is breached. Combining Bollinger Bands with volume indicators can confirm valid breakouts. AvaTradeGO’s mobile app offers seamless access to Bollinger Bands for on-the-go trading.
4. News Trading Strategy
This strategy takes advantage of opportunities arising from high-impact news releases that trigger significant price changes. Incorporating a news trading strategy helps avoid unnecessary risk exposure or capitalize on quick opportunities.
Trading the News
Using the Economic Calendar tool, traders track high-impact events such as inflation numbers, interest rates, and central bank announcements. Traders can place positions before, during, or after the news release, each with its pros and cons. Vantage Markets provides real-time market commentary and analysis to help traders make informed decisions during news events.
5. Price Action Trading
Price action trading involves reading price behavior in the markets. The most important indicators for price action traders are price and time, typically using candlestick charts.
Reading Candlestick Patterns
Candlestick charts show price information such as high, low, open, and close prices within a specified period. Single candlestick patterns like Hammer, Doji, and multiple patterns like Head and Shoulders provide crucial market insights. AvaTrade’s MetaTrader 4 platform supports various chart types for comprehensive price action analysis.
Final Word
Having a well-thought-out trading strategy is crucial in online trading. However, a strategy is only effective if implemented diligently and consistently. Mastering trading psychology, trading with discipline, and avoiding emotional decision-making are essential for sustained success.
Both AvaTrade and Vantage Markets offer powerful trading platforms, educational resources, and support to help traders implement these strategies effectively. Whether you are a beginner or an experienced trader, these strategies can enhance your trading experience and success in the dynamic world of CFD trading.
