How to Get The Right Data For Better CFD Trading

Traders Magazine Online News, May 30, 2019

CFDs are a popular form of derivative trading because it requires relatively little initial investment, trading is quick and there is a high potential return on investment. Unlike traditional buying and selling of shares, CFD trading is done on margin. As a result, one needs only to deposit a small percentage of the full value. On the other hand, losses can be gargantuan.

Like many forms of investment, most people follow the dangerous path of relying on their gut. Losses are magnified; therefore, you could lose much more than the capital invested. I am going to explore the research-driven trading loved by giants such as Warren Buffet.

Investors with long-term success are avid readers, continually looking for trends.

No one can predict with 100% accuracy how the global financial markets would fair. If such a person existed, they would rule the world. However, we can use research and data-backed speculation to make intelligent CFD trades.

Jack of all trades, master of none

A standard error amateur investors make is to try and know everything they can about a wide range of markets. Spreading yourself too thin means that you are unable to research with the depth required to make data-backed investments. Moreover, global financial markets are fluid. Therefore, it is borderline insanity to try and know it all.

It is better to pursue a niche so that you can delve deeply, spot trends and make adjustments based on technical indicators.

3 factors which determine the direction of a trade

The global financial markets are determined by politics & legislation, socio-economic factors, and technological developments. Without this, your trading is based on guesswork and ‘sensationalist’ media reports.

Here is how to conduct research into each factor and extract the right information.

1) Politics & legislation

Respected writer and philosopher Suzy Kassem once said the immortal words, “A nation’s greatness depends on its leader”. This is the reason why investors are glued to their tv screens when the results of an important election are announced. The winner affects industries which could open a gap for the intelligent investor.

The way politics is reported by the media can sometimes be sensationalist. To appeal, reports are simplified. As a CFD trader, data is power. Therefore, you need to look at the numbers behind politics. For instance, voter turnout percentage and demography would give you a better idea of the political landscape than a news report.

For example, Trump’s Presidency led to an active bull market. His core message on the campaign trail (bringing jobs back to America) and history as a business person gave investors the confidence that he would enact business-friendly legislation. A good CFD trader would have spotted that should Hilary have won, investor confidence in the dollar would have also been up. This is because it would have been ‘business as usual’. As a result, they would have bought the dollar on the eve of election results.

While analysing political movements, it is crucial that you strip away the hyperbole and sensationalism. You need to see what other traders can’t/refuse to and take appropriate action.

2) Socio-economic factors

In a similar vein to politics, you need to go behind the stories and into the data. More often than not, governments aim to play down pending economic catastrophe until it is too late. The news says one thing, but what does the data say? Fortunately, much of the data you need is available online for free. For instance, the U.S.A has census.gov while the U.K has The Office For National Statistics.

To draw better conclusions from socioeconomic data, compare it to other critical financial markets. This would enable you to see where the opportunities are for your chosen markets. Buying habits and economic development (or lack of) can be reliable indicators.

3) Technological developments

Technology can make or break industries. Advances can help companies to innovate faster, reduce costs and expand at breakneck speed. Therefore, this is a vital part of your research arsenal. It also gives you an idea of the direction a company is going in.

For example, about 10 years ago, while conversing with friends, I made the prediction that Amazon would soon become the world’s largest retailer and rapidly move into having a stranglehold on e-commerce. 7 years later they did just that, and are now trying to cement their position offline. I made this prediction by looking at the e-commerce trends alongside Amazon’s strategic growth. At the time, people were more open to shopping online. This was evidenced by e-commerce sales, increasing year-on-year. Amazon was also building the most powerful e-commerce data analytics on earth. It was inevitable that they would create the world’s most efficient sales and logistics e-commerce platform.

This might seem rather simple, but at the time I made my prediction, many investors had the opinion that people would still want to “feel and touch items before buying it”. I felt confident to make this bold prediction and double down on Amazon stock because I conducted a substantial fundamental analysis.

Final thoughts

To increase the accuracy of your CFD predictions, you need to look at several factors. This is why it is better to cover a small set of derivatives rather than trying to be a jack of all trades. I recommend the following books to help you on your journey:

- The Intelligent Investor by Benjamin Graham

- One up on Wall Street by Peter Lynch

- A Random Walk Down Wall Street

These books will help to shape your understanding of how to make a trade and get you into the mindset of a top investor. They could be the most important books you ever read. A single CFD trade could make you a higher return than most people make in a year. Therefore, it is in your best interest to become a more strategic investor.

I hope you found this article useful, and it helps along your CFD trading journey.

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