Break-outs and Financial Spread Betting
Trading break-outs with spread betting can be a great way to capitalise on strong price movements, and it is often possible to predict where a price is preparing to rocket through its previous boundaries. Spread bettors using this kind of strategy will wait until an index breaches its previous upper limits, usually for two or more successive days, giving an indication that the market is particularly and unprecedentedly bullish, and the price may be about to rise (similarly it can be done for a bearish market when an index (or any other asset) breaches its previous lower limits).
When trading shares through such a strategy, you would ideally position a stop loss at the pre-existing upper limit to counter the impact of a failed price break-out, but as a reactive strategy (i.e. the index is already moving favourably when the bet is placed), the downside risk is limited only to situations where the index has been overly-inflated – by which time, the trader will look to have locked in his profit and moved on to another trade.
Casting your eye over the tried and tested spread betting strategies is an important and effective way of improving your consistency and developing some structure in your trading. While it is not always possible to guarantee success through a particular strategy, or even through a combination of strategies, it’s a good idea to devise a system that works for you over the long term to deliver more frequently profitable spread trades, and to stack the odds more in your favour than with a disorganised, scattergun approach.