While trading in the financial markets, especially using spread betting as an instrument, it is necessary for the trader to have a defined strategy in place. The absence of a proper strategy could result in the trader becoming indecisive, which in turn may cause the trader to overlook essential indicators that signal an opportunity or warn of possible risks. Hence, a trader needs to have a defined strategy while trading and even more so while using highly leveraged derivative products such as financial spread betting.

Common strategies used while spread betting

When trading in the financial markets, one will find a vast amount of trading strategies.  There are pros and cons to each strategy, and the trader should select the appropriate one dependent upon the situation and the condition of the market. Out of the available strategies, one of the most commonly used is betting on the trend.

What is betting on the trend?

Spread Betting on the trend essentially involves taking a position based on the trend of the market. It means going long (buying) when the market in an uptrend, while during a downtrend it normally involves going short (selling).  It is extremely important to identify the trend of the market correctly and then enter into a position.

Some of the ways to identify and then enter into a trade are as follows:

Following the trend

As stated prior, following the trend is one of the most commonly used strategies. It involves going long when there is an uptrend i.e. when the market is making higher highs and higher lows. During this time, the most appropriate time to trade is buying when the market makes higher lows. On the other side, it is well-advised to sell when the market is in a downtrend;  i.e. when the market is making lower lows and lower highs and the lower highs mark the appropriate time to enter into the trade.

Trading the reversal

Another common strategy used while trading in the financial markets is waiting for a trend reversal and then entering into a position. Traders normally wait for an uptrend or a downtrend to over-extend its rally and then take an opposite position with the expectation of a reversal in the trend. What this means is after a prolonged uptrend the trader takes a short (sell) position with an expectation of the beginning of a downtrend, the opposite is true in the case of a downtrend.

Trading the range

This strategy is used by traders, when the markets are trading in a range. In this situation, the trade is placed when the support and resistance level of the market has been identified.  While trading a range, the trader normally goes long (buys) at the support levels and then shorts (sells) at the resistance level. However, it is important to have a stop loss in place, in case there is a breakout/ breakthrough out of the trading range. In such a case, the movement can be extremely rapid and might not give an opportunity to the trader to pair his losses. Hence, it is important to have a stop loss in place to cover for unexpected movement.

News-based trading

Another strategy commonly used while spread betting the trend is taking positions based on current news. Unlike other strategies which require knowledge of technical analysis, this strategy makes use of key news items and assesses its impact on the respective market. One will have to have detailed knowledge of the markets and the factors that drive it. Some of the common news items that drive trading sentiments are inflation, GDP, change in interest rates by the central banks, etc.