Financial spread betting has its origins in sports betting. Now, this popular speculative strategy is being utilised by investors around the world. Many people have started betting on online casinos. When it comes to understanding the innate value of a spread bet, the price movements of underlying assets must be taken into consideration. When an investor has a spread, it is possible to speculate as to the future price movement of the underlying asset – will it rise or will it fall? The way it works with financial spread betting companies is that a spread is provided for specific securities. The spread is effectively the difference between the ask price for a security and the bid price for a security. Depending on whether you are bullish or bearish about market movements, you will place your investments accordingly. If you have positive expectations about the underlying security you will position your investment with the bid price, and if you are of the opinion that the market will fall, you would position your investment with the ask price.
Using Technical Analysis for Spread Betting
Trends are one of the most important indicators in a spread bettor’s resource kit. By using technical analysis, it is possible to identify particular price trends and volume trends vis-a-vis trading. Some of the most popular indicators include Average Directional Index, Relative Strength Index, Moving Average Convergence Divergence and Average True Range. Each of these indicators has extensive literature detailing its usage, application and practical value. These indicators are widely used for the purposes of analysing past trends and extrapolating that information for future investment options. Recall that technical analysis differs considerably from fundamental analysis, as it is geared towards the analysis and forecasting of price movements for specific securities. Price and volume data is analysed in conjunction with technical indicators to anticipate changes to the future price of assets or securities. It is predicated on the notion that past patterns tend to repeat themselves. The usage of multiple indicators, oftentimes in conjunction with one another, can provide spread bettors with the necessary tools to understand future price movements and generate positive returns.
Investment Strategy Using Technical Indicators
Any successful investment strategy makes use of technical indicators to generate profits. Spread betting is no different; the overall investment strategy requires a thorough understanding of technical indicators as it relates to the underlying assets or securities. One of the more popular investment strategies is the MACD – Moving Average Convergence Divergence strategy. This strategy uses moving averages over a predefined time period and averages them out into what is known as a trend line. These allow you to make informed decisions as to whether you wish to exit a trade or enter a trade. They are based upon exponential moving averages in timeframes of 26 days as well as 12 days. The decision to buy or sell is based upon a simple mathematical formula: subtract the 26 day exponential moving average from the 12 day value signals. The result will signal when to sell or when to buy. When the Moving Average Convergence Divergence line moves away from the Exponential Moving Average line, it is time to sell. And when there is a convergence of the Moving Average Convergence Divergence line and the Exponential Moving Average line, it is time to buy.
There are several other important indicators that can be used to determine asset volatility. One such indicator is the Average True Range. This is important since it is able to ascertain the trend low of an asset as well is the trend high of an asset. The calculation of the Average True Range is easily done by subtracting the daily high from the daily low value. The period of evaluation for this moving average indicator is typically two weeks. As you might expect, low volatility is easily seen by a low Average True Range. As the ATR increases, so the volatility increases and spread bettors make use of this indicator to calculate when the time is right to enter into a trade. If there is low volatility in the market, spread bettors typically avoid making trades. The widespread popularity of spread betting throughout the United Kingdom has facilitated the rise in popularity of spread betting strategies. At its heart, this trading practice is all about buying/selling assets when the strike price is right. While the outcomes cannot be guaranteed with any particular strategy, technical analysis is certainly a useful tool as history more often than not tends to repeat itself.
Author’s Bio: Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise for the globally renowned spread betting and CFD trading company – Intertrader.