Index Spread Betting Strategy
|
|
|
|
|
|
Introduction
The Ichimoku Kinko Hyo is a highly versatile trading indicator. In fact it is a set of indicators that gives traders a complete overview of the market.
It was developed in the previous century by a Japanese journalist by the name of Goichi Hosada. He worked on it for more than two decades to further refine it and later published his findings in a 1959 book.
It is still not widely known in the West, although its popularity is on the rise. In Japan it’s hard to find a trading room without an Ichimoku Kinko Hyo chart somewhere on a screen or against a wall.
This stock market index trading strategy uses the Ichimoku chart below. The reason for this is that the spread betting strategy is very much based on trend following, which is what the Ichimoku was developed for in the first place.
Index Spread Betting Strategy
If you are looking at buying an index, such as the FTSE 100, Dow Jones, DAX 30 etc, then according to this strategy there are a series of requirements that need to be fulfilled.
-
Requirement 1 – The price must be above the Ichimoku Kinko Hyo cloud before a bull market is indicated.
-
Requirement 2 – The green Chinkou Span line must be above the price 26 periods ago. The Chinkou Span is the current price plotted 26 days in the past.
Since the Ichimoku is in the first instance a trend indicator, this is simply a visual way of immediately showing us that the current price is higher than the price 26 days ago, indicating a bull market.
-
Requirement 3 – The price must be above the red Tenkan-Sen line. The Tenkan-Sen depicts the average of the high and low prices for the past 9 periods and, as such, is similar to a short-term average.
If the price moves above this line, it simply indicates that the longer-term bull run is confirmed by a short-term upturn in the price.
-
Requirement 4 – The red Tenkan-Sen line must be above the blue Kijun-Sen line. The Kijun-Sen is the average of the highest high and the lowest low for the past 26 periods. It is therefore a longer-term average.
When the shorter term Tenkan-Sen moves above the longer-term Kijun-Sen it therefore acts as short-term confirmation of the longer-term bull market.
For a short position, the requirements should of course be reversed: the price has to be below the cloud, the Chinkou Span must be below the price 26 periods ago, the price must be below the red Tenkan-Sen, and the Tenkan-Sen must be below the Kijun-Sen.
InterTrader »
"With InterTrader you get all the normal
advantages of Spread Betting and CFD Trading plus..." » read
InterTrader review.
|
Index Spread Betting Strategy – Case Study
The chart below shows a graph of the daily price of the DAX 30 index spread betting market from April 2010 until May 2011. During this period the price moved gradually upwards, then went through a major correction but still closed more than 1,000 points above its original closing price.
If we had followed the simple trading strategy above, we would have captured most of the upswing and made a very nice profit.
Strategy Application
Returning to the chart, we see that at point A1 the first three requirements are met. The price has just moved out of the cloud, the green Chinkou Span line is above the price 26 periods ago and the price is also above the red Tenkan-Sen short-term average.
The last requirement, that the red Tenkan-Sen line must be above the blue Kijun-Sen, has not been met yet. In this particular case it would have worked out well if you did not wait for this to happen, however, it could easily have gone the other way.
When the red Tenkan-Sen line moves above the blue Kijun-Sen at point A2 on the chart, we have received another short-term confirmation of the longer term bull market.
Going long at this point would have given us a nice profit of several hundred points, depending on what we used as a stop loss point.
Index Spread Betting Strategy - Stop Loss
Using the red Tenkan-Sen Line as a stop loss is very conservative and would have kicked you out of an otherwise profitable trade several times.
The blue Kijun-Sen would have been a better option. It would have kicked you out of the trade on the 30th of November and again on the 10th of January, only to enter again when the price returned above the level of the Tenkan-Sen.
Eventually this strategy would have become erratic towards the end of February/beginning of March, with several false exits and entries before the price finally dropped back into the cloud.
The best option would have been to use the cloud itself as an exit strategy. In other words, exit the trade the moment the price drops back into the cloud. This would have given us the biggest profit and the lowest number of false entries/exits.
Index Spread Betting Strategy - Conclusion
At point B all four requirements above were again met but this time for a short trade. Unfortunately, there wasn’t much profit in that particular trade due to an early exit, e.g. the red Tenkan-Sen, would have worked best in this instance.
At point C all four requirements for a bull market were once again met. The price subsequently moved up just over 200 points, but then retracted to a level below both the Kijun-Sen and the Tenkan-Sen.
At this point, a cautious trader would wait for a continuation signal, such as the price moving above the red Tenkan-Sen again, before entering a long position.
If, on the other hand, the price were to move down further and enter the cloud, a cautious trader would wait for the requirements of a short position set out above to be met before making a trade.
Good luck and happy trading
Shai Heffetz, InterTrader
(Original article written 17 May 2011).
Spread betting carries a high level of risk and you can lose more than your initial deposit, so you should ensure spread betting meets your investment objectives.
The contents of this report are for information purposes only. It is not intended as a recommendation to trade. Neither InterTrader nor CleanFinancial.com accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.
InterTrader Account / Website |
|
|
InterTrader »
"With InterTrader you get all the normal
advantages of Spread Betting and CFD Trading plus..." » read
InterTrader review.
|
Financial spread trading and CFD trading both carry a high level of risk to your capital with the possibility of losing more than your initial investment. These products may not be suitable for all investors, and are only intended for people over 18. Please ensure that you are fully aware of the risks involved and, if necessary, seek independent financial advice.
Content supplied / approved by InterTrader which is a trading name of London Capital Group which is authorised and regulated by the Financial Services Authority. Registered address: 4th Floor, 12 Appold Street, London, EC2A 2AW.
'Index Spread Betting Strategy' edited by DB, updated 30-Apr-13
For related pages also see:
Index Spread Betting Strategy, updated 30-Apr-13
A detailed stock market index spread betting strategy covering technical indicators, entry/exit points and setting stop losses as well as a case study following the DAX index with...read article: Index Spread Betting Strategy.
Spread Betting with Elliott Waves and Stochastics, updated 13-May-13
Elliott Waves and Stochastics: a comprehensive look at spread betting with Elliott Waves and Stochastics, technical indicators theory, interpretation in spread betting and spread betting with both Elliott Waves and Stochastics for...read article: Spread Betting with Elliott Waves and Stochastics.
Spread Betting Risk Management in Volatile Markets, updated 13-May-13
Spread Betting Risk Management: a detailed look at spread betting risk management in volatile markets as well as spread betting risk management techniques including guaranteed stop losses, hedging, portfolio management and...read article: Spread Betting Risk Management in Volatile Markets.
Spread Betting and Elliott Waves, updated 13-May-13
Although there are several different variations of Elliott waves, they all fit into one basic structure. Theoretically the spread betting markets are always somewhere on this five-wave chart and Elliott Wave analysis usually delivers the best results when...read article: Spread Betting and Elliott Waves.
Elliott Wave Trading Analysis, updated 13-May-13
Elliott Wave trading analysis suggests that motive waves can be subdivided into five waves with recognisable characteristics. They always follow the main trend, which, for financial spread betting markets, can of course be either up or...read article: Elliott Wave Trading Analysis.
Elliott Wave Advanced Trading Analysis, updated 13-May-13
Financial spread betting markets often struggle to move against the main trend. This is why one finds a wider variety of corrective waves than impulse waves. Elliott wave analysis usually places corrective waves into four categories, Zigzags, Flats, Triangles and...read article: Elliott Wave Advanced Trading Analysis.
EUR/USD Spread Betting Market Turns Bearish after Fiscal Cliff Deal, updated 07-Jan-13
With the US having avoided the fiscal cliff for the time being, the EUR/USD spread betting market as been dragged down to the key support level at...read article: EUR/USD Spread Betting Market Turns Bearish after Fiscal Cliff Deal.
Risk-On Sentiment Pushes the EUR/USD Market Above $1.32, updated 19-Dec-12
The EUR/USD spread betting market pushed above $1.32 as investors appeared happy to move away from the safe haven dollar and take on more risk. With the...read article: Risk-On Sentiment Pushes the EUR/USD Market Above $1.32.
Technical Trading, updated 06-Dec-12
A series of technical trading articles looking at the spread betting markets including Channel Trading, Managing Positions, Techniques for Trading Economic Announcements, Combining Technical and Fundamental Analysis, Designing Your Own Trading System and other...read article: Technical Trading.
|
|
Q) Average Trading Results?
A) Get free trading tips, offers, price updates, important news and more!
|
|
