Hi Everyone, welcome to trading CFD’s in 20 minutes!
Not much time so let’s get started. Easiest way to learn this is to have an open mind and just learn the rules, don’t question them. You can then test this ( paper trade it ) and see if it works
CFD’s are similar to trading shares, there are a few key differences.
1. You only have to come up with 10% of the share price amount. that’s called margin. So if the share price is $10 and you buy 100 shares that’s $1000 share investment. With CFD’s you only come up with $100 and still control $1000 worth of shares.
2. You can lose more than you invest. If the shares fall to $800 value. You have lost your margin investment of $100 plus another $100. This is only risky if we don’t use stop losses.
3. You can go “long”, meaning make money if the price rises and you can go “short” if the share price falls you make money. simple!
4. You pay an interest of around 7-8% if you go long and you receive an interest of about 2-3% if you go short.
5. Placing a trade is easy. Enter the stock code you want to trade. Select “Buy Market” to go long “Sell at Market” to go short and enter the ”Quantity” of CFD’s until the number equals the dollar amount you want to spend. 200 CFD’s may equal $1900. to adjust guess and enter 230 CFD’s to up the amount you want to spend to $2000. $2000 margin now controls $20,000 worth of shares.
We use “Spectrum Live” to place our trades. You can open an account at www.spectrumlive.com.au follow the prompts and fund you account.
Now lets understand charting stocks.
We are dealing with US or Australian stocks.
I will recommend www.incrediblecharts.com Cost is $18 per month to use.
You will need to learn how to source through the top ASX 200 or S&P500 if trading US stocks.
Each chart you will see has a vertical price axis and a horizontal time axis. Each bar you will see represents one day in the market. Green candles represent the stock rose that day and red means the stock fell in price that day. Simple!
We can join these candles together to recognise patterns which we call trends. The trend is your friend.
There are 3 emotions in the stockmarket. FEAR, GREED and UNCERTAINTY
Fear occurs when you see a trend line where candles rise to a high point and fall back again. Here people are losing money. the more times the price rises to this same price point and falls back again the more people keep losing money. This becomes a Resistance Line or a point where people are in fear of losing money. price levels have memories and people react.
Example of FEAR
Greed occurs when you see a trend line where candles fall to a low point and rally up again. Here people are making money. The more times the price falls to this same price point and rally up again the more people are making money. This become a Support Line or a point where people are greedy and want to make money each time. Here the memory is greed.
Example of GREED
Uncertainty occurs when we see candles travelling sideways consequtively each day. We also see this when candles are oscilating up and down but the oscillation is getting smaller and smaller until prices are going sideways. These often form triangles in the market. We see 3 types of triangles- Ascending, Descending and Equalateral. Uncertainty can also form when a support is broken and then becomes resistance and vice versa.
When trading we only ever want to be certain, so we do not want to trade with uncertain investers. We never trade at points where there is uncertainty. This usually occurs in the middle section of a chart.
KEY RULE. We only ever want to enter a trade at points of fear and greed. Long on Support and Short on Resistance. THE SHARE PRICE MUST BE AT OR NEAR A SUPPORT OR RESISTANCE.
The next step is to confirm the strength of Support and Resistance when the price is at these levels.
We are going to use a a few indicators to now analyse the strength of a Support line.
RSI - Is used to measure the strength of buyers and sellers. It measures points where sellers are weak and when buyers are weak. The upper 70 blue line is where buyers are weak. The lower 30 line is where seller are weak. The red line is the measuring average. For support confirmation we want the red line to AT be BELOW the 30 line or crosing back into the mid zone. This means at the support level the sellers are more weak than buyers, creating more potential buying presure. If we were going short on a resistance level when we would reverse everything. We would want sellers to be weak at 70 levels.
Stochastic is similar to RSI, it measure when sellers are weak and when buyers are weak. The only difference is sellers are weak when the two moving averages are NEAR, AT or BELOW the lower 20 line.
MACD is our next confirmation that sellers are weak at the support line. Here we want to measure using two moving averages and compare the two averages with a histogram. The histogram has an invisble line you can see between the green and red bars. This line represents uncertainty. Because we never want to trade with uncertainty we want the two averages to be far below the histogram. The lower and further away from the the histogram the better.
Candlestick Momentum analysis. We now want to look at the candles to understand how fast are they hitting the resistance. Each candle has a body and shadows. The body is the solid section usually in the middle. The longer the body of the candle the faster the share is rising or falling. When we look at a number of candles in a row we can see if the candles are getting long or shorter as the candles fall into the support level. Ideal is for the candle bodies to be getting shorter as the price slows into the support line. Kind of like a car with springs on the bull bar hitting a brick wall, the faster the car is going the more likely it will break through the brick wall, but if the car slows down at the last few metres then it may not and just spring bounce right off.
Bollinger Band Analysis. This uses three moving averages that follow along with the price action. The price rarely stays outside the two upper and lower lines of the bollingers. In fact 94% of the time the price pulls back into the midzone with in two days being outside the upper or lower lines. This is confirmed when we have RSI, Stochastic and MACD indicators are all showing sellers are weak. We also want the candle bodies slowing in momentum first into the support level. THE RULE: If you see a Doji style candle ( where the body is a thin cross or very small body) forming outside or at the lower bollinger band then we can confirm out support has a higher chance of not being broken by the price. It is also acceptable if the Doji style candle has a shadow extending through the lower bollinger band. If trading short on resistance everything here is just in reverse.
In our previous chart examples we do not see this happening. That is ok if the support line is very clear and defined and the price is very close to the support line.
We enter when we see a small doji. We do not wait for the candle to reverse up off the support first. We need to enter tight on or as close as possible to the support. This way we can keep tight stop losses.
We typicalling uise a 30 to 50% stop loss. If using a 50% stop loss you will want to average more than 50% profit return in more than half of your trades to start making any profit.
For more information on how to safely exit at the right points and learn all the money management principles visit: www.lifestylesolutions.com.au for a full range of courses on how to trade CFD’s
