As every CFD trader knows choosing a trade is not always the easiest task there are CFDs on thousands of shares to choose from but which ones do you trade? Most traders follow a particular style of trading and choose their CFDs based on certain criteria such as liquidity and price, however not all traders have a trading plan but rather base their investment on factors such as dividend returns or company valuations. Even if you don’t have a trading strategy there are a few important factors that you should consider when choosing which CFD to trade online, a few of these factors are outlined below.
With thousands of share CFDs to choose from one factor most people overlook when they start trading is share CFD price seasonality, this is one of the most obvious factors influencing share CFD prices. If it is summer you should consider CFDs which historically have price moves up during this season or price moves down if you are bearish, examples of seasonal stocks include retailers.
There are thousands of indicators available with the most common ones being MACD, volume, moving averages, RSI, CCI, stochastics and bollinger bands. Don’t get confused by the many thousands of indicators available, keep it simple in the beginning. Using too many indicators can be confusing and result in mixed signals, you should start by using one or two simple indicators first like MACD and moving averages for example, once you are accustomed with these indicators only then should you start experimenting others. Some of the most successful traders solely rely on technical analysis however when starting out it is advisable not to solely rely on technical analysis alone when making your trading decisions.
Most people overlook company fundamentals when choosing a CFD to trade. One of the most important aspects in choosing a share CFD is the company’s balance sheet and profitability, reading over the company’s balance sheet is essential before making medium to long term investment, of course if you intend to engage in short term trades this is less important.
Company management is something most CFD traders fail to consider. Investing in companies who’s management have a good track record is always a good start. Of course management is more important to consider for medium to long term traders, and less important for short term investors looking to take advantage of short term price fluctuations.
Global Market Conditions
It is important to monitor global market conditions as market movements are ultimately dictated by the global economic climate. Currencies, commodity prices and global indices all have an influence on the local stock market and ultimately you CFD positions.
Of course these are just some of the factors CFD traders should consider when entering into a CFD position. Every trader enters into CFD positions using different criteria that suits their risk profile and trading habits, it is always important develop your own trading plan to site your risk profile and lifestyle.
To find out more about CFD trading you should take a look at this free CFD guide.