Understanding whether a market is likely to continue a trend, stagnate or reverse is vital for succeeding in financial fixed odds trading.
There are many ways of investigating the strength of the trend. There is no need to get overly complex about this, sometimes simply looking at a chart can tell you all you need to know.
Here are a few useful additions:
Moving Average (MA): The 50 and 20 Exponential MA can tell you a lot in our opinion.
Strength of pullbacks: If the pull backs are weak and recoveries strong, the market is telling you it is looking to go up.
No trend will go on forever, there will come a time when those 'pauses' become 'corrections' so therefore you will need to keep an eye on the strength and the depth of the pullbacks against the trend.
Multiple Time Frames: View the trend from a broader perspective. A weekly or a monthly chart can show you just how strong a trend actually is.
2. Understanding Volatility
With financial fixed odds trading you can make money in both trending and non-trending markets, as long as you anticipate which price levels will or won't be touched. Understanding the trend only goes so far as it does not tell you how soon you are likely to reach a destination point.
When markets are volatile they will move quickly in one direction, but for a shorter period. When volatility is low, you may get less movement or slower movement.
Markets tend to cycle continuously through bursts of strong activity, followed by relatively tranquil periods. Understanding volatility can help us determine our time frames. It helps us estimate possible break out points, although not necessarily the market direction.
Useful ways of tracking volatility:
Narrow Range Bars (NR7): The day's ‘range’ refers to the difference between the day's low and the day's high. Identifying the day with the narrowest range of the last 7 days can give you clues as to when the market is likely to experience an upswing in volatility. Be wary of placing ‘No Touch’ trades on these days, as considerable movement may follow. Conversely they can be good days to place ‘One Touch’ trades.
Bollinger Bands: Bollinger Bands can be a useful predictor of imminent market movement. When they are contracting, look for a break out. When they are expanding, look for consolidation.
VIX: The VIX is a measure of implied volatility in the options market. Extreme readings of the VIX can represent fear or complacency depending on cycle of the market. When the VIX is high, the markets tend to act randomly.
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: Key Technical Set-Ups' by DB, updated 05-Nov-10
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Risk Warning:
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.
* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.
