Chinese New Year: Three Cases For CFD Trading
Chua Minghan, CFA | Senior Manager, Dealing
Chua Minghan graduated from the National University of Singapore with a Bachelor’s degree in Economics. He is passionate about education and went on to get a post-grad Diploma in teaching. His vision is to educate clients to make informed decisions for their trading and investments.
Minghan enjoys learning fundamental analysis, technical analysis, and strives to use data analysis to improve his trading skills.
The Chinese New Year is a festive season may be celebrated by some parts of the world, but the trading cycle during this period is not different in the other parts of the world. As families come together to celebrate, markets often experience unique trends and shifts, influenced by this global festivity. From increased consumer spending to shifts in market sentiments, the Chinese New Year opens the door to distinct trading patterns, making it a pivotal time for both traders and investors.
At the end of this article, I will share with you some trading opportunities and a free indicator I have developed, to help plan your trades more effectively. These insights and tools are designed to empower you to navigate the festive market with confidence and make the most of the opportunities that the Chinese New Year brings.
Before we dive in, let’s revisit our article from a year ago, where we outlined our trade plans.
We were bullish on China A50, bearish on USDCNH, and bullish on Gold. Given that China A50 and USDCNH are negatively correlated, our predictions for China A50 and subsequently for USDCNH did not pan out as expected. However, our outlook on Gold did materialise, with it reaching a peak of 2236.6 on 7 March 2022.
Effective trade planning often leads to higher profitability, as you would be more careful to only take trades that align with your strategy.
With this in mind, let’s explore potential trading opportunities this Chinese New Year. As we aim to capitalise on short-term market fluctuations, we recommend using Contracts for Difference (CFD), a financial instrument that is well-suited for short-term trading.
Hengan International CFD
Hengan International Group Co., Ltd. specialises in the trading of personal hygienic products including sanitary napkins, disposable diapers, and tissue paper products.
Source: Phillip CFD
If you believe that the Chinese markets have reached their lowest point and are poised for a lift-off during the festive season, then Hengan International might be a company worth considering.
As a trader who prefers to follow the trend, I would approach this trade with caution.
With strict expectations, I’d like to see prices unfold as follows:
Source: Tradingview.com
I typically prefer to see prices break above and then retrace to the red line before I consider entering a trade. This approach helps in identifying a potential entry point with a more favourable risk-reward ratio.
Sheng Siong CFD
Source: FreePik
A popular destination for Chinese New Year shopping is Sheng Siong, known for its supermarket supplies and operations. As we approach the Chinese New Year, locals will be purchasing festive goodies. With Sheng Siong’s earnings report due in mid-February, there may be an opportunity for prices to move up this season.
Source: Phillip CFD
As of mid-January, Sheng Siong is on an uptrend with key levels at S$1.55 and within rectangle where the price low is at S$1.47. Traders can consider these 2 price points as they go about planning their trades. Given that this trade is seen as a short-term opportunity, lasting at most 2 months, trading Singapore CFD Sheng Siong could be a strategic choice to minimise cash outlay.
Source: Tradingview.com
Source: FreePik
Globally, the demand for oil is expected to rise. The Straits Times Index has noted that the Chinese New Year period is typically the busiest period for traveling, suggesting a potential bullish scenario for oil.
Source: Phillip CFD
BONUS: Trade Planning Indicator Giveaway
In this section, I’ll share a trade plan for CFD trading, emphasising the importance of risk management.
Below is an image of my proprietary trade indicator, which I use to advise my clients on trade planning.
Let’s consider US Oil as an example.
Bullish Scenario
Source: Tradingview.com
There is a visible downtrend channel. A breakout from this channel followed by a retracement, forming a second higher low, could present a trading opportunity.
Bearish Scenario
Source: Tradingview.com
In the event that bullish scenario did not play out, a bearish play would be to the downside towards 68 area.
Budgeting
Source: Tradingview.com
Above is a proprietary indicator which takes into account your CFD trading commissions and fees.
For a bearish scenario, with a S$10,000 account where a trader plans to risk 1% of his capital i.e. S$100 on this trade:
Entry price is US$71.5, stop loss at US$76.5, and target profit at US$66. By risking S$100, the trade indicator calculates that he should short 20 contracts.
Assuming a short-term trade of 20 days, the indicative cost of trading would be about S$$1.57.
The potential risk-reward ratio is approximately 1:2, which is very attractive.
The trade manager helps traders plan their trades and gives them a precise risk to reward ratio, taking into account the cost of trading.
If you are interested in this indicator, please contact me in my telegram group https://t.me/stocktradingandanalysis or email me at cfd@phillip.com.sg
If you are new to trading, open an Account with us and we’ll provide guidance to help you get started.
Conclusion
The examples presented above illustrate how traders can effectively plan their trades. The key steps include establishing a directional bias, preparing for various scenarios and carefully budgeting for each trade.
If you don’t have a POEMS account yet, you may visit here to open one with us today.
Lastly, trading within a community can significantly enhance the experience. You will get to interact with us, other seasoned investors and traders who are keen to share their knowledge \and expertise.
In this community, you will also be exposed to quality educational materials and, stock analysis to help you apply the concepts. We look forward to sharing more insights with you in our growing and enthusiastic Telegram community. Join us now!
For more enquiries, please email us at cfd@phillip.com.sg.
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We hope that you have found value reading this article. If you do not have a POEMS account and are interested in trading, you may visit here to open an account with us today.
Lastly, investing in a community can be a highly rewarding experience. Here, you will have the opportunity to interact with us and other seasoned investors who are enthusiastic in sharing their experience and expertise whether it’s through listening or answering questions.
In this community, you will also gain exposure to quality educational materials and stock analysis, to help you appreciate the mindset of seasoned investors and apply concepts you have learned.
We look forward to sharing more insights with you in our growing and enthusiastic Telegram community. Join us now!
For enquiries, please email us at cfd@phillip.com.sg.
Reference
[1] Phillip CFD
[2] Tradingview.com
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