One good rule is never to buy a share, an option, or take a position in a spread bet, unless you have a good reason to do so. One advantage that an amateur has over a professional is the lack of the requirement that the amateur should deal every day. Professionals are under a certain amount of pressure to be active, whereas you at home can decide to sit it out for as long as you like, if you see fit. As with most advantages in trading, however, it is not easy to acknowledge. It is even harder to find the self-discipline to practice this type of behavior.

One reason that you might have for taking a spread bet position might be that you have become aware of the trend of a stock or index that you have been watching. Trends that are established have a good capacity to continue. This is particularly true if they are observed to be moving in the trending direction on large volume.

For example, in the chart above, General Electric (GE) does seem to be trending upwards, as the price movement is up and the volume seems to be good as well, taken over the total of the four days prior to when this chart was printed.

However, be careful. The following shows the position at the same point in time, but with the three-month period of history selected instead of one.

Notice that there is a very definite peak at around the price 31.5 level, back in June. This is a classic example of a resistance level. The very real likelihood is that if the price approaches that value, it will then start to fall again. It may approach the level again subsequently, when technical analysts would say it was re-testing its resistance level, and fall back again. Or it may not – it may break through and continue on an upward path. Breaking through a resistance like this is regarded as a very good sign and once the breakthrough has been verified (by staying over the resistance level for a number of days, it can be expected to move onwards and upwards even more.

Trends and Retracements

I would look for 5 day constant gainers and search for this type of thing. I have never come across the company below for instance so don’t know the fundamentals but the technical analysis shows clearly the long term trend the medium retracement trend and a moving average entry and exit when the price crosses above or below. So, the chart is good, I only need to check the fundamentals and news and it’s a buy – except I haven’t checked it out yet.

Once in the trade you have a high probability that it will continue the long term trend and go back up to the previous high or even higher. At that point you may decide you want to be defensive and bank half of the profits or you are going to be aggressive and add an additional stake at the new high breakout. Keeping it simple is to take profits at the previous high or just let it run until the price crosses back below the moving average: