CFDs: Best Aussie companies to trade?

[pavilion103]

I haven't read a lot on what companies are best to trade for CFDs. Obviously when looking to hold short term (few days to weeks) it's important to choose companies which trend "well".

Besides Catherine Davey's book, I haven't read anything else where traders reveal their favourite companies to trade and why.

I am fairly new to the trading game so I'm sure people on here would have a much greater knowledge than I. Any thoughts would be much appreciated.

 

[baby_swallow]

I don't trade CFDs nowadays but since no one has replied to your post, I'll give it a go.
I suggest you stick to the big companies, ie. the Big 4 banks and the big mining co's. Limit your trade to one co. per industry sector. Also important to tract the index of each sector (XFJ, XMM, etc.), to see the big picture.
Hope this help. Good luck.

 

[pavilion103]

Thanks for the advice.

I have since spent more time looking over this. I took the top 30-40 companies and analysed the charts to see how they trend. I have selected around 10 companies to monitor at any one time which tend to trend more predictably than the others. These include:

FMG, QBE, QAN, ALL, SUN, TOL, BSL plus a few others.

I found Catherine Davey's book "Making Money From CFD Trading" to be quite useful because she is trading over shorter time frames of a few days (or even intra day sometimes).

I have chosen a maximum of two companies from each sector.

 

[Tanaka]

I found Catherine Davey's book "Making Money From CFD Trading" to be quite useful because she is trading over shorter time frames of a few days (or even intra day sometimes).

I was given that book as a gift, and thought god help anyone who gets into CFDs after reading it. The book romanticises CFD trading. Almost doubling your money in ONLY 3 MONTHS, sounds like an infomercial. The book has good insights into the personal emotions and thoughts of someone new to day trading and although it does warn of the dangers and gives some very basic advice on how to lessen the risks it still implies that CFD trading is a great way for people to get rich quick and quit their day jobs.

Best companies to trade? High Beta? Low Beta? Strong intra day volatility? Low volatility? Everyone has a different way of picking stocks, it depends on your system. I would suggest you study a bit more on systems, such as ‘Trade Your Way to Financial Freedom’ Van Tharp, it won’t give you the answers but it will give you basics about different systems that you can then Google, and then you can decide what kind of trader you are and then you can ask a question like, ‘Which high beta ASX 300 stocks do you like to swing trade?’

I trade CFDs but am totally mechanical with them, I have no preferences over any stock. Some produce more money than others but I’m not going to say that this one is lesser because it has lost me money, I know that one day it may become the bread winner.

 

[pavilion103]

I was given that book as a gift, and thought god help anyone who gets into CFDs after reading it. The book romanticises CFD trading. Almost doubling your money in ONLY 3 MONTHS, sounds like an infomercial. The book has good insights into the personal emotions and thoughts of someone new to day trading and although it does warn of the dangers and gives some very basic advice on how to lessen the risks it still implies that CFD trading is a great way for people to get rich quick and quit their day jobs.

Best companies to trade? High Beta? Low Beta? Strong intra day volatility? Low volatility? Everyone has a different way of picking stocks, it depends on your system. I would suggest you study a bit more on systems, such as ‘Trade Your Way to Financial Freedom’ Van Tharp, it won’t give you the answers but it will give you basics about different systems that you can then Google, and then you can decide what kind of trader you are and then you can ask a question like, ‘Which high beta ASX 300 stocks do you like to swing trade?’

I trade CFDs but am totally mechanical with them, I have no preferences over any stock. Some produce more money than others but I’m not going to say that this one is lesser because it has lost me money, I know that one day it may become the bread winner.

Thanks for the response. I have read the Van Tharp book and it opened my mind to a whole different side of trading that I hadn't considered.

I am looking to start with $20,000 and risk the standard 2% per trade. So I will set my stop loss 2%($400) from my entry price. To be honest I have only looked at discretionary trading at the moment and have read a fair bit on technical analysis. On my charts I currently have a 21 day EMA, volume and volume MA and the ATR. I am looking to trade very short term (e.g. a few days) and my exit is simply a breach below(or above for short) the low (or high) of the previous 2 days.

So obviously I am looking for companies that tend to trend for 4 or 5 trading days in a row. Having a bit of a play around with the numbers I'm looking for wins of around 1.25R and losses of 0.75R with an accuracy of 40%. This would result in an expectancy of 0.05. If I'm trading 12 trades on average per week this would equate to an annual profit of $6,000 on my $20,000 account.

Does anyone have any thoughts on what I've said? I would love to be corrected

 

[skc]

I was given that book as a gift, and thought god help anyone who gets into CFDs after reading it. The book romanticises CFD trading. Almost doubling your money in ONLY 3 MONTHS, sounds like an infomercial. The book has good insights into the personal emotions and thoughts of someone new to day trading and although it does warn of the dangers and gives some very basic advice on how to lessen the risks it still implies that CFD trading is a great way for people to get rich quick and quit their day jobs.

I like your terms 'romanticises' and 'informercial'. The book was basically sponsered by CMC markets so it's understandable. And completely useless in terms of actually developing a trading strategy.

I am looking to start with $20,000 and risk the standard 2% per trade. So I will set my stop loss 2%($400) from my entry price. To be honest I have only looked at discretionary trading at the moment and have read a fair bit on technical analysis. On my charts I currently have a 21 day EMA, volume and volume MA and the ATR. I am looking to trade very short term (e.g. a few days) and my exit is simply a breach below(or above for short) the low (or high) of the previous 2 days.

So obviously I am looking for companies that tend to trend for 4 or 5 trading days in a row. Having a bit of a play around with the numbers I'm looking for wins of around 1.25R and losses of 0.75R with an accuracy of 40%. This would result in an expectancy of 0.05. If I'm trading 12 trades on average per week this would equate to an annual profit of $6,000 on my $20,000 account.

Does anyone have any thoughts on what I've said? I would love to be corrected

Have you taken into account of commission, interest charges, platform and data fees, slippage and spread into your expectancy? Your edge feels too thin if you take those into account. Data fee alone could be $42.5 per month x 12 month and that's 10% of your profit.

Who's your CFD provider? Make sure you at least choose one that is DMA.

You also need an additional risk management especially for a small account... i.e. limit your total exposure to some percent of your account. Even big ASX50 companies can have trading halt and large movements and you don't want to be wiped out. You might have set your stop at 2% risk and ended up with a position that's $50K... and you will lose plenty of sleep when a trading halt is announced, and possibly be margin called when the trading halt is lifted.

I would at least assume a maximum movement of 25% and size your total position size accordingly.... i.e. if you are comfortable with losing $4000 (20% of your account) in a very adverse event, then your maximum position size should be $16K.

 

[pavilion103]

I like your terms 'romanticises' and 'informercial'. The book was basically sponsered by CMC markets so it's understandable. And completely useless in terms of actually developing a trading strategy.



Have you taken into account of commission, interest charges, platform and data fees, slippage and spread into your expectancy? Your edge feels too thin if you take those into account. Data fee alone could be $42.5 per month x 12 month and that's 10% of your profit.

Who's your CFD provider? Make sure you at least choose one that is DMA.

You also need an additional risk management especially for a small account... i.e. limit your total exposure to some percent of your account. Even big ASX50 companies can have trading halt and large movements and you don't want to be wiped out. You might have set your stop at 2% risk and ended up with a position that's $50K... and you will lose plenty of sleep when a trading halt is announced, and possibly be margin called when the trading halt is lifted.

I would at least assume a maximum movement of 25% and size your total position size accordingly.... i.e. if you are comfortable with losing $4000 (20% of your account) in a very adverse event, then your maximum position size should be $16K.

I've taken commissions/interest/fees etc. into account. I'm in the very preliminary stages of strategy development so I will need to do some proper backesting (I'm learning Amibroker at the moment) with a few strategies.

I'm using CMC Markets.

Yeh good point with the maximum position size. I am risking 2% per trade but as far as overall position size in one trade it is too large. I am leveraging it up to position sizes of $30K which could wipe out 40% of my account based on your example!!!!!

 

[Wysiwyg]

I am looking to start with $20,000 and risk the standard 2% per trade. So I will set my stop loss 2%($400) from my entry price.

So you buy ANZ stock priced at $20.00 with your $20,000 giving you, not inc. brokerage, 1000 shares. 1000 shares is $10 / cent price movement. The daily price range is often more than $0.40. Dead in a day.

 

[luke256]

If you haven't done so already it is worth keeping an eye on the ex div dates for the CFD"s you decide to trade. Factor dividends into your backtesting and see if its worth ignoring short signals that occur just before ex div date.

If your short on the ex div date you'll get stuck paying the dividend (mostly likely grossed up for franking credits). On a 4-5 day trade it'll wipe out your profits on that trade and possible leave you with an overall loss. I should know have done it before!

 

[pavilion103]

So you buy ANZ stock priced at $20.00 with your $20,000 giving you, not inc. brokerage, 1000 shares. 1000 shares is $10 / cent price movement. The daily price range is often more than $0.40. Dead in a day.

I'm not saying I use 2% of the stock price but 2% of my capital. So $400 risk. The amount of leverage I use for these CFDs ranges. Sometimes my stop will be as close to the price as 1.25%.
I don't mind getting stopped in a day. The aim for me is to cut my losses at 1R (2% or $400) and my wins will obviously be much bigger (maybe 2R or $800+), and I can have an accuracy below 40%.
What do you think?

 

[Wysiwyg]

I'm not saying I use 2% of the stock price but 2% of my capital. So $400 risk.

Yes I am familiar with %/$ risk and position size. $10 * $0.40 = $400 in my example. I understood you were planning on sinking 20k into a stock with a $400 risk. Hence my example but of course you could widen the stop loss and take a smaller position size.

I don't mind getting stopped in a day.
What do you think?

Let us know how you go.

 

[skc]

I've taken commissions/interest/fees etc. into account. I'm in the very preliminary stages of strategy development so I will need to do some proper backesting (I'm learning Amibroker at the moment) with a few strategies.

I'm using CMC Markets.

Yeh good point with the maximum position size. I am risking 2% per trade but as far as overall position size in one trade it is too large. I am leveraging it up to position sizes of $30K which could wipe out 40% of my account based on your example!!!!!

Consider switching to a DMA provider. Look it up if you don't know what that means.

Don't trade unless you become fully aware of the benefits of DMA compared to CMC market maker model.

 

[luke256]

I think CMC Markets offer DMA CFD's now as well as the MM version.

The DMA prices and liquidity are the same as the underlying market (i.e you get same prices as a person buying stocks outright on the ASX).

Conditional orders on a market maker may get filled even thou the actual stock on the ASX hasn't hit your trigger price (as market maker prices are a bit different to the ASX). For example: you have an order to buy onstop $50.01, on the ASX the share only trades to $49.97, but as the market maker prices are different you could still end up in a trade.

 

[skc]

I think CMC Markets offer DMA CFD's now as well as the MM version.

The DMA prices and liquidity are the same as the underlying market (i.e you get same prices as a person buying stocks outright on the ASX). .

Really? CMC do that? I couldn't see it on their website...

 

[luke256]

I was supprised too. They don't seem to promote the DMA much but it is mentioned on the "open an account" page - link below:

http://www.cmcmarkets.com.au/cfd/open-an-account

 

[skc]

I was supprised too. They don't seem to promote the DMA much but it is mentioned on the "open an account" page - link below:

http://www.cmcmarkets.com.au/cfd/open-an-account

Interesting. Thanks for the link. Perhaps their platform need to change name...