Strategy: Trading CFD's using technical indicators
A CFD is a leveraged product . It is therefore absolutely essential to understand exactly how CFD’s work before you start to trade them. As soon as you understand how they work, you will note they are fairly straight forward to trade with.
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Trading indicators are mathematical calculations that are plotted as lines on a price chart and can help traders and investors to identify certain signals and trends within the market.
There are different types of trading indicators including, leading indicators and lagging indicators.
In this video, we will explain how to use the Relative Strength Index. This index simply indicates whether the market is overbought or oversold. The relative strength index or RSI moves between a bandwidth between 0-100. In general, when the RSI hits the level of 70 the market is overbought, the other way around when the RSI hits the 30 level, the market is oversold. This is clearly illustrated with a green line and a red line in the chart of the underlying instrument you are trading.
In addition to the RSI, the moving average is meant to reduce the ‘choppiness’ in the price chart of an underlying index/instrument and show the trend. When using two SMA’s or Single Moving Averages, one for a short term period and one for a long term period. When the short-term SMA crosses the long-term SMA from below it means a bullish signal, when the short-term SMA crosses the long-term SMA from above it means a bearish signal.
Each period and the underlying instrument has an optimal setting to trade on. Try to set your indicators in a way that suits your needs.
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