The topics of projected targets and entries for shorter term CFD trading are covered by two experienced traders, Stuart McPhee and David Jenyns.
David: We have been asked the question: ‘Do you use projected targets such as Fibonacci expansion to anticipate price projection?’
Stuart: No. I don’t like the idea of targets because of that whole idea of forecasting. It’s the idea of, I think the index will be at x in three months’ time. As a technical analyst, I want to identify high probability trading opportunities. There’s no certainty. If it only goes up x percent or if it goes up y percent which is a lot greater, then that’s just the way it happens. I’ve never tried to determine what that might be, I’ve just got mechanisms in place that when the price does certain things I get out when I have to, or I stay in.
David: There are points where you have control over the market. That’s obviously just when you get in and when you get out. What you do not have control over is what the market is going to do. By picking a point where you are going to get out, I feel as if you are trying to gain control over something you can have no control over.
I like the idea of, you have to cut your losses short and let you profits run. Setting a price projection is not letting your profits run because you’re capping your price potential. For most people letting your profits run is more powerful, and that’s done by setting trailing stops.
The next part of the question is: ‘You talk much about the entry strategy on the medium to longer term trading but you didn’t really expand on the entries used for shorter term CFD trading. Could you please indicate these?’
Stuart: I focus on the medium term because it is a very simple methodology that everyone can understand.
David: When everybody’s new and starting out in trading they are somehow lured into CFD trading and trading the forex. People trade these exotic instruments because of the high chance of reward, forgetting that there is a high chance of risk as well. Unless you are successful trading stocks unleveraged you probably shouldn’t look at CFDs.
Stuart: Too many people lose money trading these shorter term instruments. It happens all the time and it’s because they have not mastered the fundamentals by trading simple stocks. Stocks are the easiest.
I use a very simple approach for my short term trades and it’s just short term reversal signal, using basic individual bar analysis. It’s short term reversal signal, as long as the parent, the medium term trend is also heading in that direction. It’s a very simple approach for my CFD trading.
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