Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets, CFDs, OTC options or any of our other products work and whether you can afford to take the high risk of losing your money.
Here we look at some of the main trading strategies, most of which involve short-term timeframes. Traders often adapt one or more of these approaches to suit their needs and circumstances, developing them into a personalised plan or trading style.
The strategies outlined below carry risks as markets can quickly change direction, leading to potential losses. To help manage these risks, traders often add take-profit orders and stop-loss orders to their trades.
News trading
News trading involves monitoring financial newswires in an effort to capitalise on the shifts in market sentiment that may emerge as news breaks. For scheduled economic and company news events, such as interest rate decisions and earnings reports, news traders might open, close or adjust their positions based on how they think the market will react to the announcement. Unexpected news can trigger market volatility, which may present possible trading opportunities.
End-of-day trading
End-of-day (EoD) trading is all about seeking potential opportunities in the final hour of the trading session. EoD traders analyse the day’s financial news and price action, then place their trades before the close. They may exit those positions shortly after the next trading day begins, or keep them open for a few days.
Swing trading
Swing trading refers to the practice of trying to profit from short-term price changes, or ‘swings’, in a financial instrument. These swings can be part of, or run counter to, the prevailing price trend. Swing traders use technical indicators, such as support and resistance levels, to look for potential opportunities. They often hold their positions for just a few days.
Day trading
Day trading is a short-term approach that involves entering and exiting trades within a single trading day. Day traders carry out technical analysis of charts and indicators to make their trading decisions, typically keeping their positions open for a few minutes to several hours, but rarely overnight.
Trend trading
Trend traders attempt to identify and capture gains from market trends. They place trades that follow the direction of uptrends, when an instrument posts new highs, and downtrends, when an instrument posts new lows. They aim to maintain their positions for as long as the trend continues, exiting the trade when the trend shows signs of ending.
Scalping
Scalping involves making multiple short-term trades with the aim of making a small profit on each trade. Scalpers enter and exit positions quickly – sometimes holding positions for just a few seconds or minutes – with a view to capturing gains from small price movements.
Position trading
Position trading is a long-term approach to trading, in contrast to the strategies outlined above. Position traders may keep their positions open for weeks, months or even years in the hope of capitalising on long-term market trends. Traders who adopt this strategy need to be aware of overnight holding costs and other charges that may apply to their trades.
