As mentioned above, a trading strategy is a guideline to show you where you could enter and exit a trade. Different strategies have different methods to help you recognise and respond to various market conditions, guiding you on where you could open and close a trade.
There are hundreds of different trading strategies, and trying to learn them all can become overwhelming. So, to keep things simple, below, you’ll see four spread betting trading strategies that might benefit beginner traders to know and learn.
The four strategies we’ll be covering are:
1. Market trend strategy
2. Breakout strategy
3. Reversal strategy
4. News-based strategy
Market trend spread betting strategy
In a trending market, price moves in a clear uptrend or downtrend. The way to identify the upward or downward trend is by how prices move.
For an uptrend, prices are making higher highs and higher lows. And for a downtrend, prices are making lower highs and lower lows. You could also draw a trend line connecting all the higher lows in an uptrend while connecting all the lower highs in a downtrend.
Using this strategy, you could predict where the following reaction might happen based on the trend. For instance, when the price is creating a new higher low in an uptrend, that might indicate that the trend is continuing to rise.
You could open a trade once the new higher low has formed and the price is moving back up again. If the price is not creating a new higher high, that might mean the trend has been broken, but we’ll cover that later in the reversal section.
The market trend trading strategy might attract longer-term traders because they can follow the market’s momentum. However, that’s not to say short-term traders can’t benefit from this strategy.
You could also utilise other technical indicators like moving averages or the moving average convergence divergence (MACD) to get a better indication of market movements.
You could use this strategy in a bull or bear market.
Breakout spread betting strategy
Breakout strategies involve price being range-bound or in a consolidating phase, mapped out as major support and resistance levels at key price points.
Traders looking to trade this strategy will look at the price moving towards one of these key levels and wait for the price to break out. Once the price breaks out, traders could look to enter the trade and ride the trend from start to finish.
You could utilise the volume indicator to detect an increase in volume at key levels. Combine this with technical indicators like the RSI or MACD for further confirmation of whether a breakout is probable.
To enter a trade, you could open the trade directly or place a limit-entry order at the key levels. The order will be filled when the price breaks above or below the support or resistance levels.
For instance, if you were looking at Crude Oil trading at $165 while the market has been consolidating for a couple of weeks now. You predict through your analysis that the price will likely break upwards, where you could place a buy limit-entry order at $170.
If the price breaks above the resistance level, the order will be filled, and your trade will be open; however, if the price doesn’t reach that level, your order won’t be filled.
It might also be essential to remember that breakouts won’t always happen ideally; sometimes, it will be a fake out, either as a bull trap or a bear trap. This is where the market will break out of a key level only to reverse again shortly afterwards.
By placing a strategic stop-loss order before entering a trade, you could protect yourself from significant losses if a fake out were to happen.
Reversal spread betting strategy
Reversals in the market happen when the price moves in one direction and sharply changes in another direction. This could happen after a solid move to the upside or downside and the price reaches one of the key support or resistance levels.
Reversals, like breakout and trending markets, can be traded in both bull and bear markets.
Something to remember about reversals is that it can be mistaken for a retracement. Retracements are short movements in the opposite direction, which could be mistaken for a reversal.
In order to confirm that the price is retracing instead of reversing, you could use the Fibonacci retracement tool. If the price reaches key levels on the tool, it could confirm that the price is retracing; however, if it breaks those key levels on the Fibonacci tool, it could signal a reversal.
Another technique you could use to confirm a reversal is through candlestick patterns as well as chart patterns. Candlestick patterns such as the pin bar or engulfing candlesticks are known to signal a reversal, although that’s not always the case because nothing in the market is guaranteed.
Chart patterns such as the double top or bottom could also signal a price reversal, showing that the price has failed to break above previous highs or lows.
If you open a trade at key support or resistance levels and the price does, however, reverse, you could ride the entire move. However, if the trade continues in the current direction without reversing, you could be exposed to significant losses.
Analysing these types of trades might have to be done with caution while having a good understanding of candlestick patterns, chart patterns, and the Fibonacci retracement tool to limit risk as much as possible.
News-based spread betting strategy
Traders using this strategy focus more on fundamental analysis aspects, such as news-related situations or financial events to look for a possible trading opportunity. This strategy generally sees traders with a more short-term approach to the market because they are looking for quick movements in price.
Traders taking up this strategy might be more focused on a global view of the market because news and economic events could significantly affect a vast number of investors, shareholders, institutions, and companies.
If investors or shareholders see a news story or economic event as unfavourable, the prices of certain assets could drop because more sellers will try to protect their investments. At the same time, a positive news story or economic event could push up an asset's price as more buyers might enter the market.
Let’s say, for instance, that Microsoft has a new technology that will increase workplace productivity; this could benefit the company. The result of this news will be that the share price for Microsoft will increase because investors see this as a positive move by the company.
In the case of Microsoft, a trader might open a long position before or after the news release, hoping the price will rise. However, it might be essential to remember that the markets are generally very volatile around news or economic events. It might be best to have a good risk management plan in place and trade with caution.
Other economic factors that could influence prices in the market could include when a publicly listed company share their earnings reports, political events, changes in interest rates, presidential elections, or changes in a country’s financial policy.
Using this strategy could make it difficult for a trader to know when to close a trade, either in profits or losses. This is because news-based strategies are not dependent on technical analysis. However, a trader could incorporate technical analysis into this strategy to give them a better idea of when to close a trade.
