Spread Betting Strategies

Reversal Spread Betting Strategies

Reversal spread betting strategies involve using fundamental and technical analysis to identify areas where trends are likely to change direction.

To execute this strategy, you open a spread bet in the opposite direction to the current market trend.

• If you believe the market will increase, you bet bullish
• If your research suggests the market will decrease you bet bearish

Technical indicators and tools are vital when developing successful reversal trading plans. Spread betters will often use the Fibonacci retracement tool to help determine if a financial market is experiencing a retractement or reversing. If prices go beyond the identified levels this signifies a reversal in the market.

Commonly used confirmation tools for reversal strategies include:

• Key reversal candlestick patterns: Double top and bottom, Head and Shoulders
• Technical indicators: Moving average, moving average convergence divergence (MACD)
• Stochastic oscillator volume: High volumes indicate the market is going to continue in the same direction

An Example: Reversal Spread Betting

Say you want to place an FTSE 100 bet. After a week of being in an uptrend, your analysis suggests the index is going to experience a reversal in the short term.

Your trading plan is to place a bet if you identify a double top candlestick pattern. If the market reverses, you’ll make a profit, but if the market moves on the same path you’ll experience a large loss.

Trend Market Spread Betting Strategies

Trend market spread betting is a popular medium-term strategy. Spread betters utilise technical analysis tools to identify a trend and then place spread bets in line with the trend.

Using technical indicators like moving averages and MACD, you can establish the start and finish of a markets price movement helping you find the best open and close positions.

Trend market spread betting is useful as it allows you to track a financial market regardless of whether you are going long or short. Yet, it’s best to decide on a timeframe to watch prior to placing a bet, and remain vigilant as trends can change instantly.

Beware of overnight risk when implementing this trading plan.

An Example: Trend Market Spread Betting

A forex pair is on an uptrend. You open a long bet position by buying the forex pair.

If the data indicates the market is going to reverse, or you reach your desired profit level, you sell the forex pair and make a profit.

If the forex pair were in a downtrend, you would sell and open a short spread betting position.

Breakout Spread Betting Strategies

Breakout spread betting strategies come from the idea that key price points can be viewed as an indicator of an expansion of volatility or price movement.

The aim is to enter a trend as early as possible in anticipation of the assets price breaking out. If you come in at the correct time, you can take advantage of the trend from start to end.

Technical indicators used to identify resistance and support levels by spread bettors include:

• Moving average convergence/divergence (MACD)
• RSI indicators
• Volume trading indicators – breakout and consolidation patterns

Utilise limit-entry orders at identifying price points to facilitate this spread betting technique. This means if the market moves, your order is automatically placed.

An Example: Breakout Spread Betting

Suppose gold’s current price is £1,400. After two weeks like this, the data suggests gold will break out into a downward trend.

Historic support levels identify the key price point is £1,380. To implement a breakout spread betting strategy, you place an entry order to open a short position if the price decreases below £1,379.

If the asset price falls, your order is automatically triggered and placed. If it doesn’t, you haven’t gained or lost anything.

News Based Spread Betting Strategies

News-based spread betting strategies suit traders that are well-versed with global political, economic and social events.

The spread betting strategies involve trading based on market expectations and news. For this trading plan to be successful, you’ll need the skills and resources to quickly analyse the information as to its released.

News-based spread betting suits asset classes that experience high levels of volatility, such as commodities. Nearly every day there’s news or data released regarding commodities like oil or coal that can lead to spreading betting opportunities.

Fundamental analysis tools such as economic calendars are vital when developing news-based strategies.

To be successful, you’ll need to:

• Determine the credibility of the information by identifying whether it matches market expectations
• Assess whether the news has been partially or fully integrated into the market price
• Treat each market and news update as individuals
• Create strategies and trading plans for each kind of news update
• Analyse the market reaction to the latest news as it offers further insight and information

An Example: News Based Spread Betting

Assume the votes for a presidential election are being counted in the United States. Two swing states voted differently from what the polls predicted.

This leads to speculation that the USD will increase in value by 0.23 cents on the GBP.

Based on your knowledge of forex and the result of the previous election, you believe the value will not change in the short term.

Rather than taking drastic action, you place a forex order to open a short position if the value rises by 0.20 cents.

Spread Betting Brokers

There are key points to consider when choosing a spread betting broker such as:

• Regulation and whether the broker is licensed to operate in the UK by the Financial Conduct Authority (FCA).
• The competitiveness of the brokers spreads and fees.
• The range of asset classes and financial instruments you can spread bet. Access can range from forex and stock markets to interest rates and ETFs.
• Risk management tools such as guaranteed stop loss orders and demo accounts.

To find a spread betting, you can read our Best Spread Betting Platforms in the UK list here. Our analysis found, the top 5 brokers for spread bettors are:

1. Pepperstone – Best UK Spread Betting Broker Overall
2. IG – Top Spread Betting Broker for Beginner Traders
3. City Index – Good Broker with MetaTrader 4 (MT4)
4. FxPro – Top Risk Management Tools for Spread Betting
5. CMC Markets – Top Platform to Spread Bet Financial Markets.