Tramline Trading and Financial Spread Betting
Trading as a spread bettor is an intricate and involved process, and all too often the novice trader simply doesn't understand the workload and effort involved in getting it right. With so much going on around the world markets on a second-by-second basis, it can be difficult to keep up to date with all the different variables factoring in to the equation, and traders often fall back to rely on graphical analysis methods to alleviate some of the burden. Graphical methods are a surprisingly accurate way of trading market behaviour, given the cyclical nature of most world markets, and as a result it can be possible to use simple graphical analysis to devise effective trading strategies.
One such method is known as tramline trading, and requires a simple exercise in joining the dots. Looking at a graph for a market over a particular time (which should be easily achievable within the confines of your current spread betting platform), you will notice a number of turning points where the market moves from and upwards to a downwards slope, and vice versa. Look at each of these points in turn.
Now look at the graph as a wider picture. When you look at graphical data the first few times you appreciate that is looks confusing and hard to interpret, but it actually presents extremely useful information, allowing you to establish virtual tramlines in which you can more effectively position your trades.
Firstly, look at the overall trend of the highest price points over given cycles. Is the market rising or falling overall? This should be apparent from looking at the gradient of the graph - does it go up or down?
The next step is to look at where the turning points sit on the upper part of the graph. If you can link these points with a straight line sloping either up or down you have the makings of a tramline trading environment, whereby two parallel connecting lines can be drawn between the resistance and support levels of the market.
These lines will represent the points at which the markets are pressured into reversing, either because the market becomes over or underpriced. In a nutshell, the strategy then is to buy when the market turns at a support level and to sell nearing the point of resistance, taking advantage of these organic market pressures to make your profit.
What is striking is how well the markets actually adhere to their own unwritten rules in this regard. Markets are driven largely by institutional investors with too much to lose by getting it wrong. As a result, they tend eventually towards rational decisions, with fluctuations on either side being pulled back and reversed over time. This gives markets their natural cycles, which allow shrewd traders to capitalise.
Trading through the parameters of tramlines is a particularly effective strategy for spread bettors, allowing the capitalisation on large price swings through a leveraged trading method. By implement a strategy based on trading resistance and support levels, supported graphically by the identification of tramlines, it is possible to pick better, more profitable trades more consistently.