Using charts, which also goes by the more impressive name of technical analysis, is one of the best ways to identify trading opportunities in spread betting. It is something which you should familiarise yourself when you are at the stage of using an online trading demo
account. Charting by Cantor Index is free.
You use charts to discern trends so that your spread betting
is in the “right” direction. Charts are based on bid price quotes. To open a chart of a particular market, all you need do is click on the chart icon beside the order button, which will offer you a selection of charts.
Legend has it that candlestick charts were developed in the 1700s by Homma Munehisa, a Japanese rice trader. They show opening, closing, low and high prices for a certain period. They are easier to interpret than bar charts. Charles Dow began to use them around 1900, and they are now the most popular chart for traders.
Moving averages are among the most popular and easily-used tools to hand. They show trends, which is particularly helpful if a market is volatile. Financial markets move in trends around two thirds of the time. Moving averages are the basis of many other technical indicators and theories. Moving averages eliminate “market noise.” One way to use them would be to place an up bet if a 100-day moving average moves above the 200-day moving average, as it demonstrates bullish momentum. The opposite is true if the 100-day average is below the 200-day average. Prices above the 100-day average could also be taken as a signal to buy. Bollinger bands encompass 95 percent of price activity around moving averages, and can show that a market is overstretched if prices go outside them.
The relative strength index is another of the most crucial indicators available to traders. It employs a formula to compare upward and downward movements of a price over time. Charts can be intraday, daily or weekly. 14 periods is the default setting, but it is popular to also use periods of as little as five seconds. This index has values ranging from zero to 100. If a reading is of between zero and 30, the asset is regarded as oversold – the price has temporarily fallen by too much, and is ripe for an up bet. If a reading is between 70 and 100, the asset is considered to be overbought, and it has risen excessively, so it is time for a down bet.
Spread betting guru, Malcolm Pryor, said that there are hundreds of different tools a trader can use, and that traders should find just a few kinds of charts that they like and concentrate on them. He added that most traders do not make use of charts to the extent that they should. He wrote the book, Seven Charting Tools for Spread Betting
, which explains the tools he uses every day, including those above.