Certain trades are better applied in specific situations based on the trend and volatility so you should be aware of big up coming announcements like Interest Rates and US Payroll Numbers.
Volatility is a big factor in the success you will achieve with fixed odds trading. When the markets are swinging wildly as they did in September 2010, for example, then it might be better to avoid trade types that benefit from lower volatility, such as 'no touch' bets or 'stays in' bets.
One Touch Trades
Let’s say you believe the market will touch a given level, at least once, before the end of a certain period. The market only has to touch the level you have chosen once in order for you to make a profit, this could be just moments after the bet is placed, days after, or at the last moment of the last day of the trade.
Time is against you when it comes to 'One Touch' trades, as every day that the markets move away from your One Touch target, the odds are moving firmly against you. You have to pick the circumstances when the market will not only move, but will move quite quickly.
The best time for One Touch trades is during the calm before the storm. If you know there is a big announcement coming up, such as a crucial interest statement or US Non-farm Payrolls, the chances are the market will be coiling up ready to spring once the announcement comes.
Just before most big announcements, traders will be nervous about taking big positions, which might make it appear like a low volatility environment, when it is actually quite the opposite.
‘In/Out: Goes Out’ Trades
Remember, just because you are in a high volatility environment doesn't mean it will continue. Be cautious of placing a one touch trade presuming the market will continue to move quickly. Chart formations might suggest a significant trend and all the facts might lead you to assume that it can continue, however markets can be very unpredictable, and can quickly disappoint.
In the following example, an ‘In/Out: Goes Out’ trade was placed just before the US interest rate announcement in September 2007. An ‘In/Out: Goes Out’ trade is two ‘Touch’ trades in one; you're predicting the market will touch one of two points in the future. You just need the market to move in either direction considerably for you to win. If it bumbles around without any significant change, you would lose.
Leading up to the interest rate cut, the market was very cagey, as nobody wanted to take any big positions before the highly important US interest rate announcement. If the US Federal Reserve cut rates, the market was going to shoot upwards. If they left them on hold or didn't cut them enough, the market was going to drop.
However, there was no way of knowing which way the decision would go. What seemed highly likely was that the market would move significantly on the news, however which way was unknown.
On the day before the announcement (the 17th), the S&P 500 was around 1480. An up or down trade with the triggers set as 1510 and 1480 could have been placed with the expiry 9 days later.
BetOnMarkets were only offering odds of 1.07 on this. However in my view the post interest rate movements weren't fully priced into the market yet, making this a ‘value’ trade. As it turns out, the US surprised many by cutting by half a percent. The upper one touch level was hit within a day. In hindsight perhaps these levels could have been stretched out further for an even bigger gain, but it is always easy to be wiser in hindsight.
Please Note: Financial fixed-odds can become addictive. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Financial Fixed Odds: Applying Technical Set-ups' by DB, updated 08-Nov-10
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Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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