Time Frame

The first step in developing your CFD Trading Plan is to decide on the time frame that you want to trade. This includes the market that you are considering, be it shares, Contracts for Difference (CFDs), Options, or futures, how long you intend to stay in a trade and how often you are going to monitor the trades.

Few people can monitor a trade all day every day, so trading intra day time frames on shares or CFDs can be left to those traders that have the flexibility to do this. End of day would be the most common timeframe chosen by traders, holding trades from a few days to a few months.

Those investing for income or long term growth would consider a timeframe of months to perhaps years and could monitor the share on a weekly or monthly basis. The shorter the time frame the more risk in the trade, the more decisions that a trader has to make and for a successful trader there will be greater returns.

Decide what works for your lifestyle and commitments before moving on to the next step.

Trade Selection

The next issue to address is which trade to enter. There are an infinite number of trade opportunities and you have a finite amount of money. You can afford to be very selective. In fact, you cannot afford to not be selective. The less experience you have the more selective you should be. The feeling of missing something is one of the most common feelings new traders experience. It is very difficult to learn to just sit there and wait for YOUR set-up to develop while the market is making all these nice swings and all those other people are making money.

The task now is to identify two or three types of set-ups to add to your “watch list???. As a new trader, always trade with the trend. Buy CFDs that are trending up as it is likely that they will continue. A car traveling in one direction takes time to turn around to travel in the other direction.

A very useful exercise is to study stocks that have performed well in the past and identify patterns or set-ups that occurred prior to the strong move. If you are a new trader, find just one or two set-up conditions and learn those inside and out so that when you see them the response to place the trade is a reflex. If you see a potential trade set-up and doubt/indecision begins to creep in, it means you have not done your homework and were not prepared.

Another benefit of studying set-ups is to learn that the same set-ups occur over and over and build the belief system necessary to have the unflinching confidence required to consistently take the trade set-up when it appears. If you are having difficulty identifying these profitable set ups then follow an experienced analyst until you can identify them.

Entry Techniques

When the conditions for a trade are met according to your plan, it is time to enter the market. Always trade in the direction of the trend, even on entry, using a conditional order. Entering the market this way is the most fundamentally sound approach to entering a trade. This is an entry done with the potential new trend, not against the current market trend. Place an order above a resistance level to buy the share if it pushes higher. You will not own the share if it does not break upwards and you will be on the stock when it does finally break higher.

This approach to buying CFDs allows you to place a stop immediately below the resistance level or the most recent low prior to the trade entry. In this manner, the initial risk of the trade can be determined without guessing where to place a stop.

At this stage consider how much capital you are prepared to place onto the share. The amount of money that you commit to the trade and the level of your initial stop will determine the money that you have at risk on the trade.