It’s hard to imagine trying to trade CFDs without a trading system, yet many people do so simply because they have no idea how a trading system works! While the two types of trading systems, either mechanical or discretionary, have their differences, if you want to trade CFDs online, using one of them is almost certain to benefit your trading performance.
This article will explain how each kind of CFD trading system works, and what the ways in which it can affect your trading outcomes.
A trading system for CFDs, to put it as simply as possible, is simply a set of rules to which you’ll adhere in managing your trades, and there are both mechanical and discretionary CFD trading systems.
Mechanical CFD Trading Systems
Choosing a mechanical CFD system will allow you to simply write down exactly what you’re looking for in the CFDs you want to trade, and the system will automatically reject any CFDs which don’t meet your criteria. If one of your criteria, for instance, is that you won’t enter a CFD trade until it’s crossed its 3-day high, then you’ll eliminate from consideration every CFD which hasn’t. You are instantly saving yourself a tremendous amount of guessing and hunch playing as a basis for your trades!
Using a mechanical system for CFDs online cfd trading will let you enter your criteria into one of several trading software programs like WealthLab or TradeSim, so that you can see how those criteria would have performed over a specific period of time, say the past ten years. You can keep changing the criteria and backtesting them, so that you come up with a set of parameters which has the best long-term profit combined with an acceptable amount of drawdown.
Choosing a mechanical CFD system will allow you to create and test customized trading system with which you’re completely comfortable, rather than relying on someone else’s system and hoping it will perform as advertised!
Discretionary CFD Trading Systems
A discretionary CFD trading system is one which isn’t entirely mechanical, but still may have its own clearly defined approach to trading which has proven profitable over time. Such a system may still allow you to look for CFDs which have crossed their trendlines so that you can enter or exit a trade, but a discretionary system will allow you to plot your own trend line angles and positions according to your interpretation of a chart’s pattern.
These CFD systems are not considered mechanical because they allow you to draw your own support and resistance lines or to use some more sophisticated patters like ascending triangles, which would be difficult to define with a mechanical system. The best way to learn a discretionary trading system is with guidance from an experienced user who has already profited from it.
Regardless of which kind of trading system for CFDs you choose, you really need a system to enable you to make consistently profitable trades. Using a system will enable you to approach your trading in a professional, disciplined manner, making profits consistently and keeping tabs on your trading record so that you can stop mistakes before they cost you too much. A CFD trading system is your best weapon against becoming an emotional trader!