Spread Betting Techniques
Today I decided to start trading again after a long layoff. I had also decided to take a cautious approach and rather than try and catch the major movement I would watch for the movement, confirm it and then decide what to do. Usually there is still some movement after the initial leap or drop and I would concentrate on trying to get between 10 and 20 pips.
Tactics and strategies employed in spread-betting are as varied as in any other area where you are attempting to forecast future events. It is not our aim to push you in any particular direction, what works for one may not be suitable for another.
We’ve searched the Internet for research and advice in this area and have unearthed academic papers, general words of wisdom and added a few ideas of our own. Something here may help spark your interest to investigate further…
Spread betting techniques and strategies broadly fall in to two categories known as fundamental and technical analysis. Both are very different in terms of what they look for to base a high-probability trade yet both spread betting techniques are also extremely complimentary to one another. Successful and consistent spread betting requires the trader to be able to pinpoint high-probability trades whether in the short term or the long term and each of these methods for spread trading provides the tools for each of these timeframes.
Spread betting techniques which use fundamental analysis can be described as macro-analytical techniques. This means that they look at the underlying, and often medium to short-term trends that move the prices of stocks, commodities and currencies. Spread trading using this form analysis involves focusing on broad information such as interest rates from central banks, company earning reports and geopolitical developments. These are the big market movers which underpin the general sentiment of investors as well as the major supply and demand factors across all markets.
A spread betting technique incorporating fundamental analysis as the backbone of its analysis would possibly look at a long term swing trade with the bias of fundamental data. This would mean, for example, that whilst several European nations struggle with sovereign debt issues a fundamental analysis would suggest that the ‘safe haven’ of the US dollar is likely to be in medium-term demand. A long spread bet on the US dollar over the following weeks is highly probable to be a profitable trade unless the situation resolves overnight. Likewise, a long trade taken on Brent Crude oil with the increasing likelihood of conflict in the Middle East would also be a high-probability spread betting technique based on the fundamental factors driving the market.
Spread betting techniques which use technical analysis as a principal basis for entering or exiting a trade focusing on charts and can ignore the fundamental drivers of the markets. Since technical analysts rely on the information presented on the charts to spread trade it is often considered unnecessary to take into account the long term fundamental trends of a market. Technical analysis as a spread betting technique relies on traders analysing familiar chart patterns in order to find high-probability trades. With a basic understanding, traders can learn how to spot these patterns and pre-empt the direction that they indicate the future price of a stock, commodity or share. The reliability of patterns such as wedges, double-tops and head and shoulders allow spread betters to confidently enter a trade with confidence that price will move in their favour. The self-fulfilling element of these patterns makes them even more probable that the trade will be successful.
Technical spread betting techniques can also include the use of powerful candlestick trade analysis. This ancient technique uses candlestick charts, available on all charting software packages and online brokers, to establish when a market is running out of steam and ready for a reversal. High-probability candlesticks include the Hammer and the Engulfing patterns. These two simple and highly visible chart bars are incredible effective at letting traders know in advance when a market may be ready to change direction. Despite their age, candlestick spread betting techniques are still very popular and have a high probability of predicting price movements. Spread betting using this simple analysis can be enhanced by using technical indicators also found on standard charting software. These indicators provide confirmation of the candlestick pattern and increase the probability of a profitable spread trade.
Indicators which can be used to reinforce technical analysis are those which are often added to the bottom of a chart and include stochastic oscillators and the Relative Strength Index. These are known as ‘leading indicators’ and inform a trader when a stock, currency or commodity may be losing or gaining momentum. Spread betting techniques which use these alongside candlestick trading are highly effective and provide a second opinion on the future direction of price. They work by providing an indication of the momentum of a market and can inform a trader when a high probability spread trade may exist. Spread trading based on a combination of technical indicators, including momentum indicators; pattern and candlestick recognition can be a very powerful spread trading technique. Despite the fact that many spread traders define themselves as either a fundamental or technical trader, the use of both forms of analysis can be highly complementary techniques in looking for the highest probability trades.
When first approaching spread betting you will notice that there are many factors to the bet you place and the spread as given by the spread betting company.
You should make sure you know exactly what you are doing and the meaning of the bet you place on the spreads.
It is known that most people are not fully aware of what they do and this is why the gambling companies are so profitable and successful. The spread betting company will do its best to tempt you into the bet and most chances you will answer to the challenge.
The following are spread betting techniques as gathered from several sources over the internet:
1. Stop loss / Win loss – Utilise stops to mitigate losses.
2. Don’t be tempted to buy into trading systems that sell for hundreds – why isn’t the author using the system himself?
3. How much should I bet? Are you sure putting all your life savings on one single bet is wise?
4. Diversify and spread your risk – get it? Spread your risk – don’t put all the eggs in one basket.
5. Don’t follow the masses – If there are rumors that something is going to happen or you hear people say that something is going to happen – most likely it won’t. Maybe it will but doesn’t count on it.
Most importantly – think before you act.