Long Archives - Spread Betting Examples

Bollinger Bands breakout strategy (the squeeze)

Now we will show you completely the opposite of what we showed you earlier. This is a Bollinger band breakout strategy. This spread betting strategy works especially when prices have been trading in a range and there has been no decision on direction. Then suddenly they move either lower or higher and break out of the range.

The Squeeze: This strategy is also known as the squeeze, as prices will start trading in a range before the breakout, the Bollinger upper band and lower band will squeeze

Look at the spread betting example of Xstrata (XTA.L) below:

Bollinger Band Break out – LONG

Traders trade the prices long when prices have gone into a rage or consolidation, the bands squeeze and prices break to the upside closing above the bands.

Bollinger Band Break out – SHORT

on the other hand a short occurs when prices break out of the squeeze to the downside closing below the bands. In this case, as we can see the spread betting example above, Xstrata broke it’s range to the downside, the prices closed below the band and the prices continued lower.

How to control your risk. This depends on your risk tolerance. Some traders, with a higher risk tolerance put their stop above the range, others with a lower risk tolerance would put their stop loss just above the middle of the band

Measuring the strength of a trend

This same method can be used to measure the strength of a trend. Once the break out occurs and prices remain in the top half or bottom half of the Bollinger Band. Not crossing the middle line, this indicates that the strength of the trend is strong and it likely to continue.

Previous: Bollinger Bands Mean reversion

Bollinger Bands mean reversion strategy

As we stated in our previous page the Bollinger Band is created by two bands around the 20 moving average centre line, and these two bands are the 2 standard deviation. In statistics, the 2 standard deviation contains 95.4% of the price movement. Normally, the price will move away from the centre line towards the extremes and then snap back to the middle (The mean) like an elastic band. This snapping back is a “mean reverting strategy”. So when to spread bet long or short?

Mean reverting Spread Betting strategy

Long:

When the prices move down towards the lower band, this is when spread traders will either go long to open a new position or buy to close out their short position.

Short:

When the prices move up towards the upper band, this is when spread betters will either go short to open a new position or sell to close out their long position.

Below is a spread betting example of Xstrata (XTA.l) and how to trade the bands:

The bands can be traded in many ways, above I have showed you a spread betting strategy, on the next page I will show you something completely opposite. When trading this mean reverting spread betting strategy, aggressive traders would enter as soon as the prices touch the bands, instead less aggressive spread traders would wait for the prices to turn around look for a candle that closes in the direction they want to trade, then take the trade.

For example, (in a long trade) when prices are falling a less aggressive trader would look for the prices to touch the lower band and the next candle to finish up not down, above the band. Then the trader would enter the trade long, following a long spread betting strategy.

Closing your trade. Some spread traders will close the trade when it reaches the mean (middle line – 20 MA) others will wait for the prices to reach the above band. This all depends on your risk tolerance

Next, as we said we will show you the complete opposite.

Next: Bollinger Bands breakout strategy

Previous: The Bollinger bands

Parabolic SAR

The Parabolic Time/Price System or better known as the Parabolic SAR is an entry and exit system created by J.Wells Wilder. SAR = “Stop and Reverse” .

It combines price and time components to generate your spread betting long or short signals. The Parabolic SAR adapts to the change. It is also an effective tool to determine where to place your stop loss.

Long Spread Trading Signal

When to take a long spreadbetting strategy? When the candle finishes above the Parabolic SAR and the Parabolic SAR indicator changes from being above the price to being below the price. The Parabolic SAR indicator was used as a stop and reversal trading strategy, where you would not close your position but would turn it around from a long to a short trading. The Parabolic SAR Indicator can be applied to Forex, stocks, indices,

Short Spread Trading Signal

Opposite to your long trading strategy, When the candle finishes below the Parabolic SAR and the Parabolic SAR indicator changes from being below the price to being above the price, this is the signal to go spreadbet short.

Now the next page will show you how the Parabolic SAR is extremely useful for knowing where to place your stop loss.

Next: Parabolic SAR Stop loss

ZigZag – Practicle use

Not many spread betting platforms offer the ZIGZAG, but if you find it it does help in your analysis and projection. Example many Elliot wave chartists could use the ZigZag line to filter out noise when doing their count. The ZigZag settings to be applied is subjective o the individual doing the count, and how sensitive his count is to the price action.

As you can see from the chart above we have used the ZigZag Line to filter out just then main movements.

Filtering out Support and Resistance:

In the S&P 500 spread betting example, the Zig Zag line has filtered out support and resistance. We have used a 5% filter, therefore only when the spreadbetting price moves more than 5% will it determine important areas of price reversal or price continuation. Below I have pointed out the break of support.

After the price found new support it started forming an ascending channel that was eventually broken to the downside and the support line became new resistance.

as you can see the ZigZag Line has helped also identify patterns. as in this case and ascending channel.

to see how effective the ZigZag line is, look to the left of the triple top pattern. Can you see how effective the ZigZag Line was in maintaining you in a long spreadtrade, which would have allowed you to run your trade all the way to the top of the first peak.

In Conclusion. The Zig Zag Indicator is effective to help you identify chart patterns, support and resistance areas and help you stay in the path of the main trend.