The Trend is Your Friend



You can increase your profit-making ability when trading the spread betting markets by learning how to identify and track price trends proficiently. Professional investors make most of their profits in a trending market. However there is a problem that most novices do not appreciate with this trading strategy.

This is that the spread betting markets does not move in trends for most of the time. In fact, trends only exist for about 30-50% of the time. During the interim, price normally consolidates by trading sideways within a restricted range producing circumstances that make securing consistent profits far more difficult to achieve. The following diagram illustrates both trending and range trading conditions.



Trends and Range Trading

Traders attempt to profit from fluctuations in prices, i.e. they try to buy low and sell high or vice versa. Just a glance at the above chart confirms that price expends the majority of its time trading horizontally within a constricted range. Assets spend less time advancing in trends.

A trend exists whenever price continues to keep climbing or falling over an extensive period of time. In a bullish rally, price will generate a sequence of higher highs and higher lows. In contrast, a bearish trend is denoted by a series of lower highs and lower lows. When price is range trading, its movements are limited by an upper limit or ceiling and by a lower limit or floor. In order to enhance your ability to execute spread bets more proficiently, you must learn to distinguish between these two important trading patterns. You will find that you can make profits more easily when price is progressing within well-defined trends.

The Psychology behind Trends

A bullish trend is created when buyers are stronger than sellers and their purchasing power propels prices higher. During such rallies, if retractions do occur then they do not exist for long before price rebounds and commences its journey upwards. Bearish trends are formed when sellers are the dominate force. Again, any rallies tend to be short-lived before price proceeds to plunge lower.

When buying and selling strength are of similar magnitude, then price will advance sideways within a constricted range. During such times, price will repeatedly bounce against well-defined tops and bottoms. The markets possess a natural tendency to move with no particular objective or aim. Trends are only created if a new catalyst emerges capable of providing sufficient purpose and momentum.


Detecting Trends

You will find that distinguishing trends from range trading is a relatively easy task to accomplish when studying the middle or left of a trading chart. However, this objective becomes progressively more difficult towards the right-hand side. You have probably already seen impressive examples of trends clearly visible in the middle of charts or presentation slides. The problem is that they are of little use because you need to analysis future price movements which only begin to appear towards the right-hand side of charts

The past is preset and simple to evaluate whereas the future is unknown and unclear. By the time you distinguish a trend, a good portion of it would have already gone. Nobody issues an alarm when a trend evolves into a range trading. By the time you acknowledge this vital change, you could have already lost money attempting to trade as if price was still trending.

The majority of traders also cannot accept uncertainty. They have a strong psychological need to always be right. They commit to losing positions by hoping that price will turn back into their favor. Attempting to be correct under such market conditions can be very costly. In contrast, expert investors exit losing spread bets quickly. Whenever the market deviates from your evaluation, you have to instigate immediate actions in order to minimize losses without hassle or feelings.


Key Trends

What are trends and how long do they last? Many professional traders acknowledged that there are three main trends, which are primary, short-term and intermediate.

A primary trend is either bullish or bearish in nature.  Bullish trends ascend in value while bearish ones descend. They normally exist for between nine months to two years with full cycles lasting for about four years, as displayed on the above diagram. These trends are centered about global economic cycles. For example, bullish trends are generated during times of expansion while bearish ones are prevalent during recessionary periods.

Primary trends are not straight-line event but consist of sequences of rallies and retractions, as illustrated by the above diagram. These combinations of surges and corrective dips are known as intermediate or medium term trends. Intermediate trend can differ in length from as low as six weeks up to nine months, i.e. the length of an extremely brief primary trend.

Intermediate trends are commonly developed because of evolving economic, financial or political events. You need to possess some comprehension of the direction of the primary trend because rallies in bull markets are powerful while retractions are weak. Alternatively, price declines in bear markets are significant while rallies are limited and short.

When you have acquired a sound understanding of the fundamental primary trend, you will be in much better situation to assess the characteristics of intermediate rallies and retractions. Intermediate trends can also be categorized into short-term trends, which last from as low as two weeks up to five to six weeks.


Trend Cycles

You should consider opening long spread bets whenever the primary trend is converting from a bearish trend into a bullish one. In contrast, you should execute short spread bets when a new bearish trend is forming. In addition, you should only consider activating long spread bets during the entire duration of bullish trends because retractions tend to be limited in nature. Similarly, as rallies tend to be brief events during bearish trends, only initiate short spread bets when they are prevalent.


Impacts of Different Time-Frames

Many investors overlook the point that price frequently progresses by trending and range trending concurrently. This is because they opt for one time frame, such as hourly or daily, and then search for new trading opportunities using just these charts. With their focus limited to only these options, trends from other time frames, such as the 10 minute or the weekly, can often sneak up by wrecking chaos with their strategies. You need to appreciate that different price formations can exist concurrently on different time-frames.

Novices usually feel baffled when they look at charts based on a variety of time-frames and they see price moving in numerous directions at the same time. For example, they may detect a buy on a daily chart and then a sell on the weekly chart or vice versa. In addition, alerts produced by different time frames on the same trading chart frequently contradict each other. Which ones will you follow? Many investors select one time frame and then shut their eyes to others until an abrupt event from a differing time-frame interferes with their strategies.


Methods and Techniques

There is absolutely no solitary miraculous solution that you can deploy to help you distinguish trends and trading ranges. However, there are numerous approaches available and it makes sense to combine them. If they subsequently affirm each other, then their meaning is strengthened. In contrast, whenever they contradict each other, you are advised to bypass that opportunity. Traders utilize the following methods to distinguish trending from range trading conditions.

1. Evaluate the pattern of highs and lows. When rallies keep achieving higher levels and retractions keep positing higher lows then an uptrend exits. The pattern of lower lows and lower highs pinpoints a downtrend. A formation of unpredictable highs and lows points to a trading range.

2. Draw an upper trendline connecting important recent lows and a down trendline joining major recent highs. The slope of the latest trendline determines the current trend. An important high or low on a daily chart is the highest high or lowest low achieved during the course of one week. As you analyze charts, you will become more proficient at performing these tasks.

3. The direction of the incline of a moving average can be used to identify a new trend. If a moving average has not registered at a new high or low in a month, then the market is range trading.

4. You can utilize technical indicators, such as the Moving Average Convergence Divergence (MACD) to help you verify whether price is presently advancing within a trend.



If you learn how to trade the spread betting markets by tracking trends then you will definitely increase your ability to secure consistent profits. However, you will need to expend energy and time achieving this objective as a number of problems exist, as defined above. Nevertheless, you will find that the effort involved will well  be worth it as ‘trending with the trend’ is acknowledged to be one of the most powerful strategies available.

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