Commodity CFD Shares: CFD Share Trading

Posted on July 8, 2010 by

CFD share trading is very different from conservative trading. CFD shares are never physically bought or sold. A person trades these shares in the direction that they think that they will move. A person will buy a position if they think the price will rise, and sell if they think the price will drop. The profit or loss on these is determined by whether you are correct and the size of your position.

The way that cfd shares are different to traditional share trading is that you get more exposure to share prices than you would if you had to purchase the share outright. You are able to get a great amount of gains, but you can also suffer losses that exceed what you initially put down. Therefore knowing exactly what risk management tools you need to use is very important. Without these tools, you can lose a lot of money over a short period of time.

The pricing on a cfd share is paid by commission. This is determined by the percentage of value of your transaction. Sometimes there is a funding fee to cover the cost of financing any long position that a person would hold. The financing is charged at the risk-free (LIBOR) rate plus 2.5% per annum. Funding of a short position works where you will receive interest.

One example of buying and selling CFD shares is if two clients want to buy the same share and think that the price will rise. One client decides to buy the physical shares through a stockbroker and the other client buys a CFD. As the stock rises, both clients are profiting while holding the position. The share price rise and both clients decide to close their positions for a profit. The first client who purchased the shares out right will be charged a flat rate fee and receive 100% of the net dividend. The second client had to put down 15% for the margin requirement initially and will be charged a commission when they close. They will also be charged overnight financing costs for the period that the CFD contract is held.

Cfd share trading is not a get rich overnight scheme. You have to know what to look for and do a lot of research on the stock before you take any action. Looking at the past history of the ups and downs of a stock will help to give you a better idea of what the future may hold for them. You also want to look at the economy and what industries are taking a huge hit and not making much profit. One example would be department stores. If people are not spending money since the economy is bad, then stores are going to lose a lot of business. On the other hand, knowing what industries are thriving will help you to profit. Some businesses such as gasoline and grocery stores will not take a huge hit if the economy starts to suffer. The internet is a good place to carry out research; there are also many online forums where traders exchange tips and feedback.

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Trailing Stops Strategy Explained

Posted on July 6, 2010 by

If you want to become a successful Forex trader than it is important to recognize trends. You will need to know when you have to opt in for a trade and when you have to get out again. There are different strategies that will help you decide when to start to trade and when to exit one and the trailing stop strategy is only one of them.

It is very easy to enter a trade but it is incredibly hard to exit a trade. When do you cut your losses and when are you satisfied with your profits? Because of the high volatility of the Forex market losses can easily be turned in to profits and profits can become losses in a matter of seconds. You will need to have some kind of system that will protect you from unnecessary losses and help you gain high profits.

Stop Loss Order

You can not become a successful Forex trader if you don’t have a good system. A system will contain certain forex indicators but also placing the right stop loss orders. You will either go short or long based on the performance of the market and based on historical and economical facts. Based on these facts your expectation is that the trend is bullish or bearish. Comparing support and resistance levels will help you deciding what stop loss orders to place in order to secure your profits and lower your losses.

Placing a stop loss order will always be a certain amount of pips above or below the current price and the width of your order will be dependent on your margins and how aggressive or conservative you are. The problem with placing these orders is that although prices may keep rising, you will be stopped if your profit is reached. Making profits is a good thing, but if you were able to double your profits if you weren’t stopped than a stop loss order is a bad thing. An alternative is placing trailing stops instead.

Trailing Stops

Instead of placing your stop and loss order, with trailing stops you will enter a certain percentage where you want to exit. For example, you could decide that you want to enter a 10% trailing stop on a bullish trend. This means that as long as the price is rising, you will not exit the trade unless there is a reverse of 10% of the actual price. This is a very good way to increase your profits and lesson your losses. There are different trailing strops strategies which you can use.

Momentum based Trailing Stops

With a momentum based trailing stop you are actually working with emotions which is not always a good thing to do. Instead of exiting at a certain price, you will wait until you believe the trend is changing. Some people use technical criteria which will decide if they exit a trade. An example of this could be when the price has consolidated for 3 following days which could mean the market is going reverse. Other traders use a rolling stop system which has no discipline at all and is purely based on emotions. The momentum trailing stop is a very risky way to trade and it can give you very high profits but also massive losses. It certainly is not the right system for beginning forex traders.

Parabolic Stop and Reverse Trailing Stop

The parabolic SAR is a basic Forex indicator but it can also be used as a stop loss system.  The practice behind this is that it will place a new order directly after you have exited a trade, following the trend. If you went long and the market is reverse than it will directly place a new order following the short position.

If you are in a very volatile market than this is an excellent way in following the trend but if the market is choppy than using the Parabolic SAR is not such a good idea. When the trend is not clear you will continuously stopped out of trades which will increase your losses. Another disadvantage is that when your stop signal is never reached it will not do anything and not give you any additional buy or sell signals.

Conclusion

Deciding what strategy you want to use will be highly dependent on how aggressive or conservative your trading style is. For a beginning trader it is highly advised to use stop loss orders instead of trailing stops because of the high risks which are involved. Once you are experienced you can try to place some rolling orders. Don’t forget that all systems are dependent on the flow of the market.

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How to Use Bollinger Bands explained

Posted on July 6, 2010 by

A very popular Forex trading indicator is Bollinger Bands. It is so popular because it is very easy to use and to understand. This indicator is a way to measure the market’s volatility. Volatility means how much the market is fluctuating, if there is no fluctuation at all than there is very little volatility which means there are very few good trading options. On the other hand, when a market is very volatile than the market is bouncing up and down which will give us quite a few openings to start a trade.

Basically the Bollinger bands are 2 lines that will either squeeze /contract together or they will expand. If they will squeeze together than the market is really slow and there is not much volatility. If they expand than a bullish or bearish signal might be close by.

When a Bollinger squeeze is apparent than this means that a breakout will occur. A bullish signal will occur when the candlesticks are breaking out of the upper band and a bearish signal will occur when the candlesticks will break out on the lower band.

On the left you see that the bands are contracting (squeezing) and that the candlesticks breaks the upper band. On the right you see that the price continues to rice and if you had chosen a bullish position than you would have made yourself quite some money.

The Bollinger Bounce

The bollinger bands act as mini support and resistance levels and when there is no clear trend than the price will tend to bounce back and up again between the bollinger bands. The price always tends to go back to the middle area of the bands.

This picture is a great example of a Bollinger Bounce. You notice that the price first went down and touched the lower band. right after touching it went back up again and now it is touching the upper band. There is a very big change that the price will go back down again until it reaches the lower band. This bouncing will continue until there comes a clear trend in the price.

How to Master Bollinger Bands?

The bollinger bands strategy is pretty simple because you either expect it to bounce back when it touches one of the bands, or you expect a breakout when the bands tend to squeeze. You might think that this is to simple but that really is all about it. Off course this bollinger bands strategy does not always work because there will also be a lot of times when they do something different than you expect. That is the exact reason why you should never make your trades dependent on one single indicator.

If you want to master working with the bollinger bands indicator than this great video I found on Youtube might help you. It has more in dept explanation how the bands work and when a bullish or bearish signal is likely to occur.

If you are interested in understanding the exact calculation behind this indicator than take a visit at bollingerbands.com

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Technical Forex Trading Indicators

Posted on July 6, 2010 by

Forex trading indicators are your most important tools deciding if you want to go short or long. There is not set of indicators that is right for every situation or person for several reasons. Some people like to trade aggressive while others trade very conservative. Some like to watch at the 10 minute charts while others look at the 1 or 2 hour charts. The only way to discover what Forex trading indicators are the best ones to work with is trying them out and understanding what they do. Here you can find a list of the most used indicators which I will update frequently. In the end I will explain how every indicator works, what it does and how you can use it.

A

A.D.X.
Accumulative Swing Index
Average True Range

B

Bollinger Bands

C

Camarilla Equation
Chaikin Oscillator
Commodity Channel Index

D

DeMarker Indicator
Detrended Price Indicator
Directional Movement Index (DMI)
Disparity Index

E

EMA: Moving Averages
Exponential Moving Average

I

Ichimoku Kinki Hyo

K

Keltner Channel

M

MACD
McClellan Oscillator
Momentum
Moving Averages

O

OsMa

P

Parabolic Sar
Pivot Points

R

Rate of Change
Relative Strength Index
Relative Vigor Index

S

SMA
Stochastics

T

Trix
True Strength Index

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