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Course overview
1. Investing in stocks vs. trading share CFDs2. What is the earnings season and how does it affect the price of shares?3. Trading the stock market: So, how does it work?4. Trading on Initial Public Offerings5. Putting your stock-trading strategy into action6. Using risk management in share trading7. Conclusion5. Putting your stock-trading strategy into action
Step 1. Create a checklist
You can start a stock trading strategy by creating a simple checklist with a set of essential criteria. Here's an example:
Is the share in a growth industry? Current examples are tech, healthcare, and automotive.
What is the company's outlook? You can determine this by filtering stocks based on their financial ratios.
Is the stock overvalued or undervalued? You can work this out with technical analysis and using trend lines, support and resistance, and other indicators.
The goal of this simple process is to remove the obviously weaker investments and focus on those with more potential to profit.
Step 2. Define your entry and exit requirements
Once you've narrowed your options down to a small number of suitable stocks, the next step is to consider your entry and exit points.
If, based on your calculations, you've determined a figure you think a particular stock's price should be, you can simply use that as your exit price. One of the unique advantages that share CFD trading has over traditional shares is that if you think that the price of a stock is going to go down, you can trade in that direction. This is done by selling, or "shorting," the stock through a share CFD.
This differs from traditional share trading, where you'd need to sit on the sidelines and wait for the right buying opportunity before investing.
Step 3. Manage risk
Finally, it's important to manage your risk and calculate how much you want to invest in each individual trade. Remember, it's never wise to go "all-in" on a single trade.
A good rule of thumb is to risk anywhere from 1-3% on any given trade.
For example, if your account balance is $1,000 and a trade goes against you, the highest loss you'll incur at a 3% risk ratio is $30.
From there, it's just a matter of calculating the lot size of the trade based on your $30 risk tolerance.
Trading calculators
You can use Axi’s free trading tools to calculate your profit and loss, the required margin, and the value of a pip. Trading calculators help you manage your risk efficiently.
Quiz
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