Best CFD Trading Strategies for Day Traders

26 Aug 2021

Have you been trading for some time now, mostly during your free time, and are thinking about doing day trading instead? Here’s what you should be prepared for, and some trading strategies you can adopt with CFDs.

What is day trading?

Day trading is a trading practice where investment assets or instruments are purchased and sold within the same trading day, as opposed to holding overnight positions.

Day traders are active traders who typically use short term trading strategies and leverage to maximise their gains from small price movements.

While day trading carries a significant amount of risk, professional day traders are able to do so profitably by adopting some important rules.

  • Staying up to date

Besides being well versed in technical analysis and charting, day traders are constantly staying up to date on market events, so they can be on top of any anticipated price movements.

  • Using only risk capital

Day traders need to make quick decisions with every single trade and avoid allowing their emotions to get ahead of them. So they only use risk capital in their trading, in other words, capital that they can afford to lose.

  • Trading instruments that offer high liquidity and flexibility

Day traders often make use of leveraged trading instruments like CFDs that offer high liquidity, high volatility, low transactional costs and greater flexibility of trading without the need to own underlying assets. These allow day traders to focus on price movements, without concerns of expiry dates or deliveries.

For instance, Phillip Futures offers zero commission trading to CFD traders who trade on the Phillip MetaTrader 5 (MT5) platform, starting from as low as 1 share CFD. They also offer zero platform fees and no minimum fees, which is ideal for day traders looking for low costs.

  • Having a trading plan and sticking to it

This is probably the most important rule of all. Day traders have to put their trading strategies and plans in place even before their start their trades. That includes deciding on their order types, stops and limits ahead of time, and sticking to that plan during execution.

Popular CFD trading strategies used by day traders

Breakout Trading

A breakout occurs when prices move above a resistance level or below a support level with higher volumes. A breakout is often closely followed by increased volatility and a price trend in the direction of the breakout.

In anticipation of a breakout, CFD traders can enter a long position when prices move above the resistance level, or a short position when prices fall below the support level.

Scalping

Scalping is another popular strategy used by day traders, which involves entering and exiting multiple trades in quick succession, to record gains from small price changes.

Scalpers never let their profits run. Instead, they follow a strict exit strategy. Scalpers will enter their positions very precisely, and close them as soon as the trade is profitable. This helps them to quickly realise small gains and accumulate them throughout the day. In order to do this effectively, scalpers rely on trading in large quantities, typically using leverage, to maximise their gains.

Pull back trading

Scalping is another popular strategy used by day traders, which involves entering and exiting multiple trades in quick succession, to record gains from small price changes.

Scalpers never let their profits run. Instead, they follow a strict exit strategy. Scalpers will enter their positions very precisely, and close them as soon as the trade is profitable. This helps them to quickly realise small gains and accumulate them throughout the day. In order to do this effectively, scalpers rely on trading in large quantities, typically using leverage, to maximise their gains.

Momentum trading

Momentum traders look out for assets with a strong price momentum, then enters a trade while the momentum remains strong, and exits when prices lose momentum.

This trading strategy flies against the typical investment advice of buying low and selling high, as momentum traders tend to buy high and sell higher, or buy low and sell lower as the situation arises.

Popular CFD trading strategies used by day traders

Before embarking on your day trading journey, it is also important to choose a good platform for your needs.

The Phillip MT5 platform is a multi-asset trading platform by MetaQuotes Software, which allows you to trade a variety of different asset classes on one platform.

It is integrated with a comprehensive range of technical charting tools, including the popular Trading Central indicators, as well as the Autochartist pattern recognition tool.

Phillip Futures is currently offering a zero commission promotion for MT5 customers who wish to trade SGX and US Share CFDs. There will also be no platform fees and no minimum fees payable, and investors can start trading from as low as one share CFD.

To start trading, you can download the free MT5 demo account here, and open your Phillip Futures account here.


Trade CFD on Phillip MetaTrader 5 (MT5)

Features of trading CFD

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allows traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    CFDs typically have flexible and smaller contract sizes. This means that traders will be able to enter into a CFD contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFDs allow traders to perpetually hold the position(s). CFDs are cash settled, no need to worry about the delivery of the underlying asset.

Trade Shares, Indices, Cryptocurrency, Oil, ETF CFDs at zero commission on Phillip MetaTrader 5, a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Download Trading Central’s Market Buzz for updates on more topics.

What’s more? Phillip MT5 is now supported on Mac OS! To install, simply download the file below and complete a simple installation process.

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

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