Navigator in the CFD dealing world

Lets assume that you have studied fundamental and technical analysis already and have a trading system which will earn millions. However, before opening your first profitable trade you will face another small but relevant question: Which securities should I choose for trading?

Most brokers provide a list of only 30 most popular and liquid CFDs with underlying stocks of Dow Jones index + several metals. But some of them give you an opportunity to trade thousands of stocks, futures and metals with their own features. This fact allows you to choose only the best CFDs from various sectors and indexes which fit to the trading most of all at the moment. On the other hand you may be confused by the amount of the available securities. It wouldn’t be wise to pick the first one you see because each of them has different characteristics which can be crucial for profitable trading.

In other words, you should avoid some of the CFDs while intensively looking for others. The most important features of Contracts for Difference (and their underlying securities), which you should pay attention to, are: trading volume, price level, existing trend or correction.

Trading Volume

Stock’s trading volume is the number of shares traded during a given time period. Some data sources deliver it as the number of lots (1 lot = 100 shares). The indicator shows you the level of interest of traders in the stock. Volume makes the price move up or down. This means that with small or no volume the price will stay the same for days and even weeks until someone buys or sells the stock and thus moves it. Even a small transaction can cause a dramastic price change. These movements make it impossible to trade this security effectively. That is why we recommend you to choose CFDs with avarage volume not less than 50,000 shares per day.

Security with low trading volume

Price Level

Price level influences the risk that you take when trading a stock. Very often penny stocks with tiny price show very fast growth or fall within one or few trading days after weeks of plane fluctuations. During these changes your risk of loosing as well as earning money increases incredibly. But remember that you are not gambling and should stick to your money management system which tells you that this is not the best CFDs to choose for trading. Recommended minimal price of a traded CFD - $5.

The price of the stock increased by several times within few days

Trend vs. Correction

Speaking about price, only 2 situations are possible: a trend or a correction. Either of them you notice at once after looking at the chart. It shows you whether you can trade a certain CFD or not. Most financial analysts and professional dealers do not recommend to trade when a correction is occurring. But, as you may know, a correction takes place in about 80% of the whole time period of the price movement. Of course, every corrective wave can be divided into smaller trends and corrections but you have to stay on the timeframe you chose and determine the main trend and its correction. The most profitable trading happens when you trade along with the trend and stay away from the market when it ends because corrective movements are often unpredictable and complicated. See the example below.

Correction is a wrong time to trade

This is the most general features that you should consider first of all when picking the best CFDs for trading. It will take you only few minutes to analyse them but will save you a lot of efforts and money in the future.