Market Timing Techniques to Multiply Your Profits
Pin-point market timing is the hallmark of top traders...
: Spread Betting Opportunities
: About the Editor
Profitable financial spread betting is a result of combining various practical tools to give yourself an edge. So you have determined the direction of the prevailing trend in the market that you are looking to spread bet. Now you need to make the decision about exactly when to place the bet and enter the market. It is at this crucial point that you need effective market timing tools and techniques.
There are a number of ways in which practical technical tools like simple moving averages and one or two effective indicators can be used for timing your entry and exit into the market with profitable results in spread betting.
How to use Moving Averages to Time the Market
This involves a simple moving average cross over system. Consider the chart of the Dow provided below. Essentially, what you want to do is take buy bets when the blue (shorter) moving average crosses over the red (longer) moving average and short when the blue line crosses below the red line.
The question that is probably on your mind is this: how often can I trade using this market timing system?
This is more of an issue with those new to financial spread betting than it is to pro spread betters. This is because seasoned traders and spread betters know that it is not how often you trade that counts but how profitable your trading is. Having said that, you can fine tune this system to increase the number of crosses and thus the number of times that you have new spread betting triggers to enter the market.
In the chart below, the length of the moving averages have been reduced and the chart horizon itself narrowed. This increases the sensitivity of the trading system to new price data.
The combination of the 5 and 9 day moving averages for timing the market as used in the chart of the Dow above is very popular with professional traders in the futures markets. This combination can also be used to time entry into new financial spread betting positions. The rules are the same: you place long bets when the 5 day average crosses above the 9 day average and you place short bets when the reverse occurs.
Market Timing Using Technical Indicators
The approach to market timing that we have discussed so far can be augmented and made even more effective with the aid of one or two stock market indicators. I say one or two because most of the indicators available to traders are useless and not recommendable if your aim is strictly to make money from financial spread betting.
Two notable exceptions are the Williams %R and the RSI.
Whatever indicator you are comfortable with, the overall trading principle is the same. The trick is to use the moving averages simply to determine the direction of the prevailing trend. And then use the indicator for timing the market before you place your spread bet.
• So, continuing with our example from above, when the 5 day moving average is above the 9 day moving average, we will look to go long when the indicator , say in this case, the Williams %R is less than -80. In the case of the RSI, this can be when the reading is below 30. In this situation, you only take buy bets.
• On the flip side, when the 5-day moving average crosses under the 9 day moving average, we know that we are now in selling mode. But we only actually place a sell bet when the indicator reading is in ‘overbought’ territory and reversing.
Of course, every trading system or approach to market timing has its own shortcomings. Nevertheless, one big advantage of adopting simple systems such as these (apart from their practicality for financial spread betting purposes) is that they remove some of the elements of subjectivity that is very common with novice traders.
You can see that we are not trying to 'predict' the markets here. We are just using a set of objective tools to ensure that we are spread betting in the tune with the market. Trying to ‘predict’ the market is futile. Besides, successful and profitable spread betting is so much easier with simple market timing tools!
If you enjoyed this article on market timing, then click here for more insightful articles to hone your spread betting skills