Day Trading with Contract for Difference (CFD)
What is a CFD?
A CFD is an agreement between two parties to exchange the price difference of a financial instrument. The profit & loss is determined by the difference in the entry and exit price of the underlying instrument from when the contract is opened and closed. It allows the buyer or seller to gain market exposure while only outlaying part of the full notional value of the instrument.
I believe that trading a CFD is very similar to trading actual shares, except that you are trading with a margin, meaning that you only have to put up a certain percentage of your purchase.
When holding a CFD overnight, you are paying interest. The interest charged is generally calculated on a daily basis, usually about 3% higher than the cash rate set by the reserve bank, Check with your broker.
In this respect, there is very little difference between long term investment in a CFD and investing in shares. Don't forget, if you are purchasing equity by drawing money out of your capital trading account, you forgo interest received.
A CFD of course presents some degree of danger which we will explore a bit later. If you wish to trade a CFD, you have to make up your mind whether you wish to be a day trader or wish to hold the position for any length of time. If you wish to hold your position for anything else but to day trade, never ever take a bigger CFD position than what you would take with the actual stock. In this case, only use it to work with borrowed money. Always protect your trading capital. In other words, money management is of the essence. If you adhere to money management principles, trading a CFD is as safe as trading shares.
Remember: Leverage multiplies your investing power when you are right, but it also multiplies your losses when you are wrong.
You need to have a stop loss strategy to preserve your trading capital!
Day trading for Profit
Personally, I use a CFD for day trading or very short term trading, but that is only my personal preference. I know traders who use CFD for all their medium term trading and are quite happy to pay the interest.
I will be teaching you my personal method of trading a CFD, as this is the method I know best and gives me an overall profit.
CFD for day trading
At this stage, I am investigating a trading plan to day trade CFD, concentrating on the top capitalised shares of your main index. In Australia, I use the ASX20. This gives me 20 stocks to scrutinise; any more would be too difficult. The ASX20 stocks have big daily volumes, ensuring a trade when needed.
I am also using CFD for a day trade if I notice a stock outside the ASX20 rising strongly with high volume.
My selection criteria are as follows:

• Use the intra day chart set to 2 minutes.
• Set one Exponential Moving Average (EMA) to 7, another to 15
• If theEMA7 crosses above the EMA15 and the price is above both, a buy signal is triggered.
• Set the stop loss just below the EMA15, trailing as the EMA moves up.
• After about one and a half hour of trading, set the timeframe to 5 minutes, both EMA should show up.
• Always sell at the stop loss.
• Generally I avoid taking a long position if the stock has risen more than 1 percent from yesterday's close.

However don’t forget that part of a good day trading plan is intuition. Interpret the market continuously to spot opportunities, as well as to assess your entry and exit points. I have provided a frame work only. Use it wisely.
Should you have any questions, please don’t hesitate to email me on ejk@tradingaustralianshares.com or look at my web site, where I have more detailed instructions.
You may also want to have a look at my mentoring service.
Article provided by
Eric Kratzer
 www.tradingaustralianshares.com