Tips for Trading Share CFDs
- Buy strong stocks in strong sectors in rising markets.
- Short weak stocks in weak sectors in declining markets (or not ).
- Stay in cash in a trendless market.
- Buying the best stock in the wrong sector in a down market is suicide.
- Determine broad market and individual sector trends in the context of the business cycle, stock market cycle and interest rate cycle.
- Stick to the stop loss discipline, if you are trading on margin you cannot afford to relax on stop losses.
- Take smaller CFD positions in speculative stocks. High-risk stocks should of course be treated differently. Speculative stocks add some spice to your overall portfolio but smaller positions and wider stops will help you manage your risk.
- As a general rule I'd avoid buying too early but I'm sure there are exceptions to this. I prefer to buy after 9am when the market has settled a bit from the typically large spreads in the first opening part of the trading session.
- Remember that information is power. If you plan to buy and sell individual equities, it is in your best interest to keep yourself abreast of developments in the stocks you're invested in. Don't settle for just the hype about hot shares.
- A word for if you trade small caps - having dabbled in small caps my general experience is the worst thing to do is sell on the morning of a sell off as market makers will already have marked down the shares expecting sellers at any price. But as long as it's not Armageddon, often the prices begin to rise again as the lower prices tempt buyers back in at much better prices.
- And finally while stocks and shares should make up part of your CFD portfolio, they shouldn't be all of it - make sure you take into consideration your time horizon and tolerance to risk to develop a good well-balanced portfolio of shares, bonds, and cash.
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