Using Simple Moving Average techniques To Identify Trends



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A simple moving average provides an objective and simple way to identify or confirm the direction of a trend. Remember, the objective is profitable financial spread betting. You are not trying to prove to anyone that you are better than they are at creating fancy looking charts with all sorts of lines, angles, waves or whatever!

Here I focus on two simple but highly effective MA techniques.

Using Single Moving Averages as Trend Indicators

The chart below shows the Dow Jones Industrial Average. The blue line is the 50 day simple moving-average. Essentially, what you need to focus on is that in general, when the Dow is above this MA, it is in an up trend and vice versa.

In this case, your spread betting positions should be mostly long positions when the Dow is above the blue line. Note that this is not to say you should completely ignore opportunistic short positions, just that your trading should have a long bias. Likewise, you should be spread betting on falling prices (selling short) when the Dow is trading below the 50 day MA. It goes without saying that this simple strategy would have enhanced your spread betting profits tremendously if you had been trading the Dow over the period shown in the chart.

An alternative to the single MA approach is to use a combination of key price averages as in the chart of the British Pound below.

Using Multiple Moving Averages for Trend Confirmation

The spread betting rule required to employ this approach is straight-forward. When the shorter (in this case, 50-day) MA is above the longer (in this instance, 200-day) MA, the trend is up and spread betters should be looking to place buy bets. When the reverse holds, the aim is to spread bet to the downside by selling short.

Again, resist the temptation to be cute or fanciful here. The key is to focus on the end result (which I believe is profitable spread betting — otherwise you should not be on this website) and not get too cute using all sorts of combinations and permutations. Keep your analysis simple and you keep your financial spread betting profitable.

I regularly use all the approaches discussed here. I hope you also find them useful as you reach your goal of making consistent profit in financial spread betting.

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