Author: johnsbe

Average Directional Index (ADX)

Volume Indicator: Average Directional Index (ADX)

 

The Average Directional Index measures if a stock is trending or not. It also measures the strength of the trend no matter it’s direction, and  it is made up of other two parts, the +DI (Plus Directional Index) and the –DI (Plus Directional Index), which can generate a buy or sell signal.

The ADX, often combined with other indicators, Mainly tells you if what you are trading is ranging or trending. This will help you decide if using a ranging or trending strategy.

Well Wilder stated that the ADX above 25 shows a trending market and below 20 it is a ranging market. But often the 20 value is the dividing point between trending and not trending. As you can see above in the Dax Rolling bet, it was trading in a 400 point range for four months up until August. At the beginning of August, the DAX broke out of a range and traded lower almost 2000 points. At this point the ADX started moving above the 20 line.

 

Interpreting the ADX:

 -The ADX above 20:                                      the trend is starting.

-The ADX moving higher from 20 to 40: a trend is under way.

-The ADX above 40:                                        the trend is very strong.

-The ADX moving lower from 40 to 20:   a trend is under way.

-The ADX below 20                                          the markets are ranging.

 

 

Lagging Indicator: As you see above the ADX showed the start of the trend a bit. It is a lagging indicator. In fact often The Average Directional Index is complementary to another indicator.

 

Next Page:The Average Directional Index (ADX) trading signal

On Balance Volume

Volume Indicator: On Balance Volume

 

On Balance Volume is a tool that quantifies the strength of a price movement or trend. It helps you identify if it is weak or strong.

It is very easy to calculate:

If today’s price closes above yesterday’s price, then we give the volume a positive number. If instead today’s close is below yesterday’s close, we assign the volume a negative number. The close can be one also just one pence. The only thing that is important is the direction of the price, if it is up or down.

The volume is then added up, and an index is created.

 

For those spread betters that are mathematically minded.

 

Calculations:

OBV = ( (C-P) / |C-P| * V

 

Interpreting the On Balance Volume:

As Most Volume indicators, On Balance Volume can be used as a warning tool or confirmation tool.

Confirming tool

 

As you can see in the FTSE Daily Bet, The on balance volume is initially confirming your trade. The on balance volume is making new highs as the prices are making new highs. The On Balance Volume is confirming a strong uptrend in the FTSE 100.

There is a strong commitment from buyers.

 

Divergence: A warning tool

Instead in the other part of the FTSE Daily Bet, The on balance volume is showing weakeness as it is making lower lows while the FTSE makes higher lows. After the second peak you can see prices turn around and move lower.

The On Balance Volume has warned those spread better of a possible short, price reversal in the FTSE.

 


Charts** Not all spread betting platforms provide volume, thus you might not have the On Balance Volume. You will get this on private charting packets.

In conclusion, the On Balance Volume can be used as both a warning tool and a confirming tool.

It is important to add a volume indicator in your price analysis, other volume indicators you can use are the Accumulation Distribution, MFI (Money Flow Index), Chaikin Oscillator and the Price volume trend indicator.

 

Volume Indicator: Accumulation Distribution

Volume Indicator: Accumulation Distribution

 

Accumulation Distribution is a volume based indictor that is used as a price confirming tool or a warning tool that anticipates price change.

The Accumulation Distribution is a variation of the On Balance Volume. The main difference in the Accumulation Distribution is that the volume is weighted relative to the closing price.

 

You will not find this indicator on many spread betting platforms as they do not report volume, but if you subscribe to any charting software they will contain volume information.

 

Accumulation Day: the volume is added when the price closes higher than the previous day’s close. The amount of volume added to the indicator is multiplied by the relationship of the closing price relative to the daily range.

Distribution Day: the volume is subtracted when the price closes lower than the previous day’s close. The amount of volume subtracted from the indicator is multiplied by the relationship of the closing price relative to the daily range.

 

In Summary, when the day is in accumulation the volume is added to the previous day’s Accumulation Distribution line, and vice versa when the day is a distribution day;

 

Accumulation Distribution: Price confirming tool

When volume increases or decreases with the prices this proves to be an effective price confirming tool. You can read up more on volume in the volume section.

 

 

In the Diagram below you can see how the accumulation distribution indicator confirms a rise in prices:


 

Accumulation Distribution: A warning tool

 

On the other hand a few weeks later in the same British Land, a spread better with access to volume information could have foreseen a turn around in prices. In fact:

 

Look at the example above.

In British land we are making new highs, but this is not confirmed by the volume indicator the Accumulation distribution indicator which is instead making lower highs.

This is usually a sign of weakeness.

 

In conclusion Accumulation Distribution can be used as both a warning tool and a confirming tool.

It is important to add a volume indicator in your price analysis, other volume indicator you can use are the OBV (On Balance Volume), MFI (Money Flow Index), Chaikin Oscillator and the Price volume trend indicator.

Money Flow Index2

Trading with the Money Flow Index:

The Money flow index used as a warning signal tool:

The MFI is a good indicator of divergence and convergence as it has volume incorporated in it’s calculations. As volume is said to precede prices, it is a good indicator of when prices are turning.

Bearish divergence is when prices are rising but volume is declining, that is: volume is less that other up days.

Bullish divergence is when prices are falling but volume is increasing, that is: volume is greater than in other down days.

 

Bullish Divergence:

As you can see from the Cadbury Schweppes graph (CBRY.L), prices were making new lows, instead the money flow index was making new highs on the strong volume.

This would have been a good opportunity to spread bet a long position as soon as the bullish engulfing pattern was completed confirming the bullish divergence.

 

Bearish Divergence:


Instead in British Land (BLND.L) we can see the opposite pattern occurring. Prices are making new highs but this is not confirmed by the money flow index that is making lower highs. As you can also see this is replicated in the volume, lower highs.

This alerted spread betters to get ready to short the market. In fact as you can see the sign of weakness is confirmed by the Harami pattern that form after the new highs.

 

As you can see above the Money Flow Index is an effective price confirmation tool and price reversal warning tool.

 

Previous Page:The Money flow index used as a warning signal tool

 

Money Flow Index

Indicator: Money Flow Index

Family: Oscillator

Money Flow index is a momentum oscillator based of the change of price and volume. This is based on a similar concept to the Accumulation and Distribution, normalized between 1 – 100 , to create an oscillator similar to the RSI and interpreted in the same way.  As an oscillator closely linked to volume it is best used to identify reversals and price extremes.

 

Calculations:

  • Typical Price: (High + Low + Close) / 3
  • Money Flow: Typical Price x Volume
  • Positive Money Flow: The Money Flow on days where the Typical Price is greater than the previous day’s Typical Price.
  • Negative Money Flow: The Money Flow on days where the Typical Price is less than the previous day’s Typical Price.
  • Money Ratio: Positive Money Flow / Negative Money Flow
  • Money Flow Index: 100 – [100 / (1 + Money Ratio)]

 

Example of the Money Flow Index:

 

Trading with the Money Flow Index:

Not many spread betting platform charts offer the Money flow index, but if you are using a private charting package that has volume indicated. You can spread bet referring to these charts

The Money flow index used as a confirmation tool:

  •  MFI < 20 – oversold
  • MFI > 80 – overbought

As an Oscillator bound between 0-100, a reading between 0 – 20 indicates that the indicator is oversold and a reading between 80 – 100 means the indicator is overbought.

When the indicator finds itself in the oversold region, traders should look to start covering their shorts.

When the indicator is in the overbought region, traders should start covering their long positions.

 

Next Page:The Money flow index used as a warning signal tool

 

Stochastic 14-3-3 or 5-3-3

#4 ) Spread Betting with the Stochastic Oscillator

Charts used:
Tag: scalping,  Day Trading, Swing Trading, Stochastic
Indicator: Stochastic Indicator 14, 3, 3 or 5, 3, 3 for a more sensitive Oscillator reading
Time frame: Any.

Many of you have asked yourself how to use the stochastic in spread betting?

The stochastic is an oscillator and shows you when the markets are overbought or oversold. Spread Betting Systems which adopt a Stochastic indicator for monitoring the price provide some very good tips about the situation of the market.

Scalpers can use the more sensitive settings 5,3,3.

Entry rules: Go long when the Stochastic has crossed below 20,  and then crossed back up through 20.
Go Short when Stochastic has crossed above 80, and then crossed back down below the 80.

Exit rules: close trade when Stochastic lines reach the opposite lines (80 for Buy order, 20 for shorts).

Advantages: gives quite accurate entry/exit signals in well trending market.

Disadvantages: You need to monito this periodically, as when markets trend the stochastic’ 20 – 80 range  could change to 30-90

I have used this on my Igindex for commodity trading as commodities often change direction adruptly.

RSI (Relative Stregnth Index)

#3) RSI (Relative Stregnth Index)

Charts used:FTSE  , Cac30 , Barclays , S&P
Tag: Scalping, Day Trading, Swing Trading
Indicator: RSI – Relative Strength Index
Time frame: Any.

No trading system can rely only on the RSI indicator, but should be used in combination with other indicators or price action. The RSI can give you an edge in your spread betting technique. Before attempting this strategy, read The RSI: The Relative strength article.

We set the RSI at a period of 14 and monitor the levels 70 and 30.(The RSI is an Oscillator and above 70 indicates that the prices are overbought, below 30 indicates that the prices are oversold).

Entry rules: Buy when the RSI crosses below 30, forms or has formed a bottom, and then crossed back up through 30.
Sell when RSI has crossed above 70, formed a peak, and then crossed back down through 70.

Exit rules: not set. Or use your money management

Advantages: RSI is a very good indicator to refer for confirmation when you are ready to enter a trade in any simple or complex trading system. Best used when trying to trade in a contratrend or or range trading market. In a trending market the RSI, can give false signals.

Disadvantages: You need to monitor your trade, as the RSI alone can give false signals when the market is trending. The RSI Oscillator should be used in combination with other indicators.

Financial Spreadbetting techniques and Tips on how to use the RSI:

Moving Average breakout- Spread Betting System

#1) Moving Average BreakOut

This is a very simple, effective and widey used spreadbetting strategy. Many professionals and non-professionals use the the Moving average to identify the trend of the trade, or direction to spreadbet.

Time frame:any. Preference 1hr, 4hr Daily
Tag: Day Trading, Swing Trading, Long term trading
Trading Indicators used: Simple Moving Averages 25 SMA (also widely used 200 MA, 100MA, 55MA)
Charts used: Any. Preference: Dow, GBP/USD, WTI Crude

Entry Rules:When the candlestick of the time frame you are trading closes above the Moving Average, You can take a long position in your online spread betting account.

If instead the candlestick of the time frame you are trading closes below the MA, take a short position in your online spreadbetting account.

Exit Rules: You can use your money monangement rules, that is placing a stoploss at a certain % loss of your accounts or once the trade has turned around a certain number of points. This is you discreation.

Others wait for a sell signal to change the position around. This will always keep you in the market. When the market is not trending you could suffer a lot of turn arounds.

Professional traders use Moving Average Breakout strategy to help them determine the trend. If the trading occurs above the Moving average. They prefer spread trading to the long side, and vice-versa. The most common and widely used Moving averages are the 200 MA, 100AM, 55 MA and 25 MA.

Advantages: You Spread trade with the trend. Going against the trend could put you in difficulty.

Disadvantages: The moving average is a lagging indicator, and it can put you late into a trend.

Spread betting Examples

25MAis on  GBP/USD Daily &  1hr on DAX and  WTI Crude


Moving Average Crossover- Spread Betting System

#2) Moving Average Crossover


Time frame: 30 min, 1 Hr, 1 Day
Tag: Day Trading, Swing
Trading Indicators used: Simple Moving Averages, 7SMA, 14 SMA, 21 SMA
Charts used: FTSE, Silver, Dax

This system is a simple system, it can be used in day trading with smaller time frames, like 15min, 30min, to 1 hr charts, or in swing trading using 1 hour, 4hr, or daily charts

Entry Rules: Go Long, when the 7 SMA crosses the 14 SMA upwards and continues to move through the 21 SMA, buy.

Go Short, when the 7 SMA crosses the 14 SMA downwards and continues to move lower through the 21 SMA, take a short spread bet position.

Don’t try to anticipate the signals, and look at  your charts historical behavior when these three Moving averages have crossed, what the out come has been. This will help you identify, when applying this strategy to a different market, if this strategy works on the current market you are trading. If you want earlier signals you can decrease the 7 MA, and if

Exit Rules:

When the 7 SMA goes back and touches the 21 SMA. Don’t forget to apply your money management rules.

Advantages: This is a simple strategy, easy to set up with many Spread Betting brokers and does not need any calculations or other studies. Can produce very good results during strong market moves, the system also can be easily programmed and traded automatically.

Disadvantages: System requires periodical monitoring, as it can give false breakouts. SMA is a following indicator  and can give a late signal or the current price bar has been fully formed and closed. In choppy  markets it can give false signals but in trending markets this will keep you in trend.

Here are three examples of the strategy above:

DAX Moving Average cross Spreadbetting strategy

FTSE  Moving Average cross Spreadbetting strategy

Silver Moving Average cross Spreadbetting strategy

Welcome to Spread betting examples

Welcome to spread betting examples this site is meant for those spreadbetting traders that have some knowledge of what financial spread betting is, to help generate other trading ideas.

If you are new to spread betting don’t worry, we will also link or give full explanations of how to spread bet and of  what various technical analysis  terms mean.

We put together our trading knowledge  and other people’s knowledge into this site.

You will find here also the abc of trading, with many different trading styles like, Scalping,   Day trading,   Swing Trading,   Long term trading.  The website is also rich of examples in Financial spread betting  Indices,    Shares Commodities,   Oil,    Gold,   FTSE,   Dow,   Dax, forex, EUR/USD,   Gbp/usd and much more.

I hope you enjoy the tips and ideas, feel free to share your strategies too.

SB