CDF Trading Strategies

Introduction

What are CFD trading strategies? CFD trading strategies refer to the systems that are used to detect and trade CFDs profitably. There are various CFD assets that are traded on the financial markets, and these are arranged into various asset classes. Each asset class comes with its own unique characteristics. However, it must be pointed out that the best CFD trading strategies are those which are simple to construct, easy to understand and follow and can be replicated on different assets, irrespective of the asset class.

Some of the easiest CFD trading strategies to implement are those which are performed using price patterns. Price patterns occur because of a basic principle of the financial markets: history repeats itself. Due to the well-established fact that the market operates in cycles, it is possible to trade instances where price action forms detectable patterns, and the same results obtained previously can be replicated.

In today’s lesson, we x-ray two price patterns for our CFD trading strategies: triangles and wedges.

CFD Trading Strategies Using Triangles

There are three types of triangle patterns:

  • Symmetrical triangles
  • Ascending triangles
  • Descending triangles.

Symmetrical triangles are marked by two trendlines that connect the highs and lows respectively, with an almost equal angle of slope.

The end result of price action with a symmetrical triangle is that the price action may break out either to the upside or downside: there is no bias as to what price may do.

Ascending triangles are bound by a horizontal upper trend line and an upward sloping lower trend line, with the price breaking out to the upside at the point of convergence of the two trend lines.

The descending triangles are formed by a horizontal lower trend line and a downward sloping upper trend line. The price action ends with a downside breakout which can be very prolific.

Entries

The basis for entries with triangles is as follows:

  • Identify the triangle type
  • Know the endpoint of the price action
  • Identify the breakout candle
  • Make the entry on the next candle, especially if it retreats to the broken trend line

Applying these CFD trading strategies to the chart setup above, we see the following:

  • A trace of the trend lines on the candle highs and lows identified a descending triangle.
  • The end point should be a break to the downside.
  • The breakout and selling points are identified
  • Stops and profit targets are set as identified

CFD Trading Strategies Using Wedges

Wedges have a characteristic shape (see snapshot below). They look just like the wedges held against car tires to prevent them from rolling away. Wedges are reversal patterns: the terminating price action is in the direction opposite the direction of the wedge.

Wedges are of two types:

  • Rising wedge, seen in uptrends and signifies a potential downside breakout.
  • Falling wedge, seen in downtrends and indicative of upside breakout.

Entries

The basis for entry is for the price to break out of the other side of the wedge, by the candle either closing above the upper trend line (falling wedge) or closing below the lower trend line (rising wedge).

Once this has occurred, the trade is taken at the open of the next candle.

The following is a 30-minute chart for the IBEX35 index CFD. There is a short-term falling wedge.

The price breaks out of the upper trend line and sets up the trade as follows:

  • Entry: open the price of the candle which follows the breakout candle.
  • SL: can be set below the lower trend line.
  • TP: This is set at the next available resistance, which corresponds to an area where a resistance had previously occurred (shown on chart).

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