Designing Strategies using Technical Analysis

1strategy020913This article is intended to demonstrate how to develop a spread betting strategy using technical analysis by implementing a sequence of simple steps.

When you perform this task, you should structure your strategy on a number of central concepts, which are:

  1. You need a procedure that will enable you to detect high quality entry opportunities for new spread bets possessing minimum risk exposure and optimum potential for profit.
  2. You also require an exit strategy primarily designed to produce maximum profits.
  3. You also need a technique to assist you in differentiating fakeouts from genuine trading openings.

If you base your new strategy on the above specifications, then you will undeniably enhance your ability to trade the spread betting markets more profitably. The next steps will assist you to develop strategies in compliance with the above concepts.


Selecting the Optimum Time Frame

You must first assess the amount of time you have to trade the spread betting markets on a daily basis. For instance, you will need a significant quantity of time to track your active spread bets if you plan to implement strategies, such as scalping, that depend on the shorter time-frames.

If you are a beginner then you are strongly recommended to construct your strategies utilizing longer time-frames ranging from the hourly upwards. You will then be able the exploit the superior statistics associated with these time-frames enabling you to detect key price patterns more readily. As such, you will be able to evaluate your risk exposure per spread bet much better by providing optimum protection for your account balance.


Choosing Technical Indicators

You have the option to select from a large choice of technical indicators. Essentially, you should test as many as possible with the intent of evaluating which of them complies best with your objectives and aspirations. You can accomplish this goal by using a demo account and tweaking the primary parameters of each technical indicator in turn.

After each experiment, you should re-calculate the performance of the selected tool by determining the new expectancy value and win-to-loss ratio of your spread betting strategy. If you intend to construct your strategy totally from scratch, then you will need to devote a suitable amount of time to undertake these trials properly.


Which Assets to Trade?

You will find that every underlying asset possesses its own unique trading dynamics. In addition, your broker will impose a spread charge each time you execute a new bet. The spread equates to the difference between the ‘Ask’ and ‘Bid’ prices of all assets on offer. As such, you are always advised to locate a spread betting broker who consistently supports the most competitive spreads as possible because their accumulative fees can definitely influence the size of your returns. In addition, you should select those underlying assets boosting the lowest spreads. You will find that the EUR/USD is always an excellent choice because it offers one of the most competitive spreads available.

You must realize that if you try to spread bet assets exhibiting larger spreads, then achieving consistent profits will be a more difficult task. For example, if the present spread of a particular asset is 6 points, then you have to gain a profit of this value just to achieve breakeven. Under such circumstances, your broker’s commission will be the 6 points. This is one of the main reasons why you are recommended to trade the EUR/USD because its spreads normally hover in the region of a couple of points. In contrast, other more exotic assets have spreads that can be in excess of 15 points.

Also seek assets associated with high liquidity. This is an important attribute because it provides you with the ability to open spread bets at any time since other traders will always be present to support your transactions. As such, experts recommend, especially if you are a novice, that you should acquire or design a trading strategy that will allow you to take advantage of the many attributes of assets exhibiting low spreads and high liquidity.


Designing a Confirmation Strategy

After you have accomplished the initial three steps, you will then possess a rudimentary strategy based on your selection of technical indicators, tradable assets and time-frames. As such, you should be able to detect quality entry opportunities for new spread bets exhibiting low risk exposure but maximum profit potential.

However, you now must protect your account balance even more by implementing improved protection against false signals. You can achieve this objective by devising a validation procedure that you can readily incorporate into your spread betting strategy. Professionals advise that you can comply with this stipulation by experimenting with other technical indicators that can produce additional verification alerts. You must not dismiss this task because it can help significantly in safeguarding your trading capital.

You are recommended to select a technical indicator that complies with the objectives of your spread betting strategy. You may need to undertake an extensive analysis in order to identify the optimum choice. Many experts utilize candlestick technology to help them to verify all the recommendations produced by their primary technical indicators.


Controlling your Risks

Trading experts emphatically advise that you simply cannot ignore this aspect of your spread betting activities. This is because if you do not introduce measures to restrict your levels of risk per spread bet then your chances of survival are grim. Basically, you need to devise a simple money management strategy so that you can understand precisely what your risk element will be for every spread bet that you open.

In addition, you must heed expert advice emphatically stating that you should only activate new spread bets if you have calculated and confirmed that your anticipated reward is at least double that of your maximum loss. In fact, a risk-to-reward ratio of 1:3 or higher is preferable. Consequently, you will need to know exactly where to locate your stop-losses and profit targets even before you open your new spread bets so that you can satisfy this requirement.



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