The Principles of Technical Analysis

1concept020913You can utilize technical analysis to help you forecast the future movements of the underlying assets of your spread bets by analyzing their historical price data. You will find that most traders deploy technical analysis to support their spread betting activities, even if they have a preference towards fundamental analysis. When you study the directional movements of assets using technical analysis, you will be trying to develop complete pictures of their past, present and future movements.

Fundamentally, you must understand that technical analysis is based on a number of pertinent theoretical concepts. For example, this method of analysis does not consider any human activities such as economic developments but instead focuses on price movements and its associated key features.


Main Concepts of Technical Analysis

A central premise is that price movements have a predominant inclination to replicate themselves by generating patterns exhibiting predictable formations. As such, your prime objective when deploying technical analysis is to detect quality entry points for new spread bets by identifying these price structures.

In addition, expert consensus advises that assets develop clearly recognizable trends and that their movements are not just chaotically produced without some form of order. For example, if you identify that the price of a security has been progressing in a well-defined direction, then you should expect that it will continue to do so unless a major fundamental catalyst intervenes.

You will discover that if you include technical analysis as an integral part of your strategies then it will assist you in trading the spread betting markets in a more business-like and scientific fashion. Consequently, you should then be capable of generating better quality and objective trading decisions. However, you must be aware that technical analysis is not perfect. Still, if you master the craft of using this technique then you will find that it can help you enormously to improve your spread betting skills.

For instance, you could attempt to detect an asset advancing in a sequence of oscillations with each complete cycle possessing a trough or bottom and a crest or top. If successful, you could then use these bottoms and tops to identify major reversal levels at which significant directional changes can occur. By utilizing such a procedure, you could then design a spread betting strategy based on the concept of tracking tops and bottoms as a method of detecting entry points for new spread bets. You could subsequently deploy an exit strategy advising you when to close your bets once price hits the next level in the sequence, i.e. a crest if you have gone long and a trough if short.


Trading Advice supplied by Brokers

Many novices use the technical analysis and recommended entry and exit signals supplied by their own spread betting brokers. Numerous beginners resort to this option soon after they commence spread betting once they realize the limits of their own trading knowledge and capabilities.

Most spread betting brokers publish comprehensive recommendations and alerts whenever the entry and exit points of new spread bets arise. Essentially, thus information should provide a successful baseline for the recipients because spread betting brokers ideally need their clients to succeed.

Their material is generated by their own teams of trading professionals and normally covers all the following important spread betting trading topics.

1. Risk and money Management.

2. Recommended and well-tested spread betting strategies.

3. Historical trading records for all supported underlying assets.

4. Pivot points to detect major resistances and support levels.

5. Recommendations for profit targets.

6. Instructive commentary on all new market developments and events

7. Advise on the best stop-loss orders to support new spread bets

This approach sounds great especially as most spread betting brokers can demonstrate that they really do make profits from their own trading recommendations over any given period of time. Will it work for you though and can anything go wrong? Unfortunately, a lot can go wrong if you attempt to just blindly follow their advice as the following analysis illustrates.

Historical evidence shows that even the best brokers select spread bets that fail but that they are more able to minimize their losses by stopping out quickly. However, you may not be as fortunate as you could well have fallen asleep or your monitoring equipment was not good enough to warn you about the occurrence and significance of new situations quickly enough.

In addition, your spread betting broker may not be able to supply important updates until well after an event has occurred because this task is just too difficult to do in real time despite the size of their staff. They also will have a much larger budget than you and can suffer a number of consecutive losses whereas you cannot. So, in summary, let us compare the resources that a large spread betting broker may utilize compared to your own.

They may possess:

1.       A large team of employees that is both highly qualified and experienced in all concepts of spread betting including strategies and tradable markets, etc.

2.       Their sophisticated computer equipment will be capable of trading numerous spread bets at the same time by applying powerful statistical techniques.

3.       They will have at their disposal extensive libraries of historical spread betting data for each supported asset.

4.       They will be able to track spread bets constantly around the clock and will be able to respond to every new development and event quickly and proficiently.

5.       They will have substantial financial capital allowing them to absorb occasional losses comfortably.

In contrast, your facilities may be limited to the following:

1.       You will probably have very limited experience or training in spread betting.

2.       Your equipment will most likely be just a standard PC.

3.       You will be on your own.

4.       You will need to sleep.

5.       Your budget will be extremely limited so that you will not be able to withstand many losses.

6.       You will be reliant on expert analysis from professional sources to inform you of the significance of each new development on the spread betting market.

From this comparison, you should quickly deduce that you are in no position to trade the spread betting markets in the same manner as a professional company. So what can you do and is it possible to make profits. Yes it is, but you will need to devise a spread betting strategy that is specifically designed around YOUR own limitations and facilities.



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