CFD Trading Generate CFD Signals with a CFD Strategy
How Do You Trade and Generate CFD Signals with a CFD Strategy?
This cfd tutorial will show an example of a Best CFD Strategy that swing traders can use to come up with a profitable CFD Trading Best CFD Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict cfd price direction, based on the concept "Volumes always precede cfd price", in CFD Trading market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This cfds technical indicator is known as On Balance Volume.
This cfds indicator is then combined with RSI & Moving Average Crossover Best CFD Strategy to form a CFD Trading Best CFD Strategy. The Indicator settings are:
- 5 & 7 LWMA, Linear Weighted Moving Averages
- RSI 14
- OBV cfd indicator
Time-frame: 4 H Chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV cfd indicator is in an upwards cfd trend line or it has broken downwards cfd trend line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV cfd indicator is in a downward trend line or it has Broken upward Trend line
Exit Trading Signal
OBV cfd indicator trend line is broken
RSI gives an opposite signal - 50 center-mark cross over
You can learn more about writing a Best CFD Strategy rules Writing Best CFD Strategy Rules and Generating CFD Trading Signals
You can also Read about other CFD Trading Strategies: Strategies List
Example of Trading CFDs generate Signals with This Best CFD Strategy
Before looking at example below, using the 138 pips and 177 pips profit examples, you need to learn the concept of volumes precedes cfd price and On Balance Volume technical indicator.
The On Balance Volume trading indicator uses volumes to measure money flowing into cfd or money flowing out of cfd.
OBV cfd indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes cfd price always and when it comes to analyzing the direction of a financial instrument whether or a trading instrument nothing is more crucial to this cfds trading analysis as understanding the volumes that are flowing in and out of cfd. These volumes can be in terms of money, in CFD Trading because charts moves in ticks data, the more flow of money in cfd the more the ticks data, therefore volumes in CFD Trading will measure number of tick data participating in cfds trading.
On Balance Volume acts as a leading indicator giving a one an idea of how much buying pressure or selling pressure is moving into a cfd. And because volumes precedes cfd trading price then this can be used as a good indicator to show the general investor sentiment.
For a CFD Trading Best CFD Strategy a one requires indicators are calculated differently. For examples our Best CFD Strategy is based on
RSI - momentum indicator
MA - direction based indicator
OBV cfd indicator - volume based technical indicator
A Best CFD Strategy like this give a good overall picture of the cfd market movement by taking into account 3 different calculation techniques as opposed to using 3 oscillators that give signals based on the same calculation method.
The OBV cfd indicator will measure the tick volume of a cfd trading instrument, for every candlestick. If you use the 1 hour chart timeframe, then the volumes will measure the total volume for the 1 hour. If you use day charts then the volume will measure the total volumes for cfd for the whole day.
However, the volumes indicator doesn't show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish CFD Candles and Red for Bearish CFD Candlesticks.
This is where the On Balance Volume comes in & adds a direction to the volumes and shows the overall direction that the volumes are flowing, whether into or out of cfd.
Volume Precedes CFDs Price
Volumes always precede cfd price, this makes volumes a leading indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the cfd market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a cfd. Because volumes will precede the cfd price, the next thing is that the value of cfd will then go up. When the OBV cfd indicator is going up it shows there are more buyers buying cfd than the sellers selling it.
When the volume falls it shows that money is starting to flow out of cfd. Because volumes will precede the cfd price, the next thing is that the value of cfd will then go down. When the OBV cfd indicator is going down it shows more trading volume is going short than long.
Subsequently when a downward cfd trend line of the OBV cfd indicator is broken it shows that sellers are starting to take profit and close their cfd orders.
Likewise when the upwards trend line of the OBV cfd indicator is broken it shows that the buyers are starting to close their buy cfds trades and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the cfd price direction and the OBV cfd indicator direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the cfd market or when to open an order.
On Balance Volume is a leading indicator & a trader using this indicator can avoid entering a cfd market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the cfd market takes away all your profit.
CFD Indicator Formation
The OBV cfd indicator is the cumulative addition and subtraction of volume based on cfd price direction.
Upwards direction - adds volume/ technical indicator moves upwards
Downwards direction - subtracts volume/ technical indicator moves up
Sideways market/Range market - technical indicator moves Sideways
Because cfd price moves in a zigzag manner, the OBV cfd indicator will also form in a zigzag manner
CFD Price Trend lines
Most Traders will use these to generate buy and sell signals.
For our Best CFD Strategy we shall use the OBV cfd indicator to confirm these buy sell signals from cfd price trend lines.
We shall draw a CFD trend line on both the cfd price and CFD Technical Indicator. If both give the same signal we buy or sell depending on the direction.
This cfd strategy will be used to determine two things.
Continuation of the current market direction
Reversal of the current market direction
Example of this Strategy
1. Downwards Bearish Market
In the above chart the first half of this cfd trading instrument is bearish. This can be shown by the cfd price trend line that shows a downward direction. This cfd price downward trend line is also confirmed by the downward trend line on the indicator - as long as these two move in the same direction then the direction of the cfd trading instrument remains decisively downward.
Because volumes precede cfd price, a trader can hold on to his sell cfds trades because the cfd market direction will not reverse, before OBV cfd indicator gives a warning.
2. CFD Trading Trend Change
Halfway through this chart there was a cfd market reversal marked by the vertical line. This reversal cfd signal was generated when there was a trendline break as illustrated on the cfd chart.
From the cfds chart you can see that the OBV cfd indicator gave the reversal cfd signal just before the cfd price trend line was broken generating a reversal cfd signal. If you had opened a sell this is where you would have closed all your trades.
3. Upward Bullish Market
Trading a cfd market reversal can be sometimes tricky, but the reversal cfd signal generated above was generated at the optimum time and cfd price continued to move up after this reversal cfd signal was generated.
For this you would have just bought the cfd trading instrument when the two trend lines were broken to the up side giving a buy signal. This buy was also a good signal in that the On Balance Volume had already formed an upward cfd trend line by the time the downward cfd trend line was broken.
The new OBV cfd indicator upward cfd trend line confirmed the direction of the market as a buy and more cfd traders will open buy cfd orders and as long as it holds, as it did in the above example then the cfd price will continue moving upwards.
After this cfd signal was given you can see that later the cfd price formed a decisive upward cfd trend line that matched the OBV cfd indicator upward cfd trend line. As long as the two kept moving upwards then the cfd market was firmly upwards.
CFD Whipsaws
4. At the end of this upwards direction, OBV cfd indicator gave a cfd trading whipsaw as if to break the upward trendline. However, even if you had opened a short trade because of this new signal that had formed as shown above you would have quickly closed your sell cfd orders before they reversed because the OBV cfd indicator soon broke this downward trend line as shown above and therefore the sell cfd trade that was forming is now not valid.
One thing that one must learn to avoid as with any other cfd strategy is that whipsaws might be generated. The best way to avoid this is to exit as soon as the OBV cfd indicator trend line is broken especially when you're trading the reversal cfd signals.
For the above example once you exit the short trade, after the new OBV cfd indicator downward cfd trend line was broken it shows there were still more buyers in this cfd trading instrument and it is better to exit any reversal trades that you might have opened, this is because the cfd price might as will move further upwards as shown by the cfd indicator moving upwards.
Because the OBV cfd indicator still went up even after touching & breaching it a little, the OBV cfd indicator upward cfd trend line still held therefore the upward bullish direction is still intact according to our cfd technical analysis & any further trades here are still buy.
CFD Trading Generate CFD Signals with a CFD Strategy
