Support And Resistance Trading In Spread Betting

If you were to take a look back over specific periods of time in any market, you would find that there exists cycles that will repeat over and over, like an endless loop.  As an investor, studying these cycles can provide an immense amount important data.  Even more, you can drastically increase your chances of profiting from the markets if you can learn how to predict accurately when the peaks and troughs of the current cycle will occur.

Whilst you will never be able to predict the peaks and troughs with 100% accuracy, you can still predict a close enough estimate that will allow you to implement support and resistance trading. It's a specialized trading strategy that corresponds well with high leverage spread betting.  In this article, you'll find out what support and resistance are, why they're important, and how support and resistance trading works.

What Are Support and Resistance?

Support and resistance are the high (resistance) and low (support) points of a defined price pattern.  Essentially, they help define what high and low is by stating when and where the price has stopped and changed directions.

Support acts as a "floor price" that prevents the value of the asset from dropping further in value.  Resistance acts as a "ceiling price" that prevents the value of the asset from rising further in value.

Each has definite points when researching past cycles; however, when practicing support and resistance trading, you are making an approximation of where each level will appear.

Why Are Support and Resistance Important?

Simply put, support and resistance help investors to identify cycles.  They represent the levels at which prices in the market tend to reverse, which allows investors to be able to make short-term profits.

As long as the market stays somewhat stable, support and reverse remain reliable indicators of when and upwards or downwards trend is about to begin.

How Does Support and Resistance Trading Work?

It's quite possible that you've already put into practice the art of support and resistance trading without realizing it.  If you've studied investing for any amount of time, it's very likely you've heard the saying, "buy low and sell high."  And that's all support and resistance trading is.

Markets are naturally cyclical, where investors buy while the market is on an upswing and sell once it starts its downswing.  This repetitive cycle allows for approximate estimates to be made on when the support and resistance levels will be reached.  When the markets reach the estimated levels, that is the investors' sign to either sell at the resistance or buy at the support.

Support and resistance trading can be a very lucrative short-term trading strategy if you've done your research and can approximate when the support and resistance levels will be reached.

However, if you don't quite feel comfortable using support and resistance for spread betting, I advise you get a solid grasp on both the concepts and the strategy behind it before you attempt it.  Never rush to use a strategy.  Always take your time and learn it inside and out before you try to implement it.