Book: Handbook on CFDs Trading
Author: Nicholas Tan
Publisher: Rank Books
Read on: 12 January 2015
- . Stocks for CFD varies from broker to broker.
- . Pay only 10 to 20% of underlying stock value.
- . Do not own underlying stocks but beware dividend.
- . Upon dividend payment, must pay back if short.
- . CFDs have no expiry date unlike options.
- . Must have deposit of min 20% contract value.
- . If fall below 20%, margin call to top up.
- . Must pay interest for open position till sold.
- . Earn interest if short position.
- . Must pay commission charge per transaction.
- . No fixed contract size.
- . Can trade SGX, overseas shares, forex and commodities.
- . In a wrong directional trade, loss can be big.
- . Always put a stop loss order on open positions.
- . Use hedging strategy against direction change.
- . Use Pair Spread Strategies in uncertain market situations.
- . Buy one stock and sell another at the same time and same cost.
- . Buy one equity with strongest outlook and another with the weakest.
- . Fundamental news resources:
- . Research.sgx.com
- . Remisiers.org > Research
- . Trading opportunity Information to look out for:
- . Company securing contracts.
- . Company Financial earnings report and release date. Act before the announcement.
- . SGX.com > Company Announcements
- . Brokers upgrade or downgrade of stocks will impact the stock price.
- . Sponsored research reports have little impact on the stock price.
- . More impact come from reports by bigger broking houses like Goldman Sach, J.P. Morgan and Merrill Lynch.
- . Subscribe to Dow Jones news.
- . Check the news every morning before the market opens.
- . Look up for recommendation by bigger broking houses.
- . Make sure the counter is either an active counter or an index stock.
- . Make sure the difference between the current trading price and the projected price is significant.
- . Look out for trading gaps. Huge price difference between opening and last done.
- . Common gap: within trading range. No effect.
- . Breakaway gap: break from recent high or low or support or resistance. Likely to continue in the same direction of the breakout.
- . Midway gap: occurs midway through the trend. Very useful info. Indicates the end point in the same direction. Symmetrical to previous high/low.
- . Exhaustion gap: a midway gap that does not continue but gets filled up in a couple of days. Indicates reversal of trend.
- . Use support and resistance created within the gap zone. Trade within the zone. Stop loss at 2 points below or above if breakout.
- . Use trading momentum retrace method. Buy a dip in a strong trend. Use MACD (EMA 20) to confirm the end of the dip. Use ADX (>30) To gauge the strength of the trend.
- . Price pull back on EMA20. ADX >30. MACD line turning after histogram peak. Cut if price drop below previous low. Profit target above previous high.