Analysing market trends is perhaps the most basic but most popular of all strategies used in spread betting. Analysis of trends refers to making use of available market information to predict a movement – upward or downward – of the prices of that particular instrument. Market analysis is of two types, fundamental and technical.
Fundamental analysis is essentially the use of information – economic, political, or environmental – that can effect the market directly or indirectly. The information collected is analysed to predict the rise or fall of any given market and to provide the investor with a higher probability of profiting. For example, if there is news of a global event that might lead to a decline in the future oil supply, bettors would predict an increase in oil prices and act accordingly.
As markets tend to become volatile when reacting to an announcement or news story, it is safe to wait and observe the price movements during the first few minutes before taking a position. However, without closely following minute-by-minute news stories this spread betting strategy can become tedious, as there are many factors outside of global developments that affect market prices.
Technical analysis is using past market data, sometimes along with indicator charts, to identify past price trends and predict trends in future. Unlike fundamental analysis, which considers all kinds of information, technical analysis only focuses on market related data such as trading volumes and price trends. The advantage of technical analysis is that the data is quick to view and can be used for all spread betting timeframes, be it years or days.
Technical analysis also informs you about the stop loss and limit order points. Technical analysis of a market is based purely on statistics, and so it is often done with the use of specialised software; software that can be used in line with minute-by-minute market data, making it a huge hit with day traders.
Technical analysis can be a very effective strategy only when you know how to interpret charts and data. And as mentioned, this form of analysis only looks at historical trends and does not account for investor sentiment or breaking news and events.
Some spread bettors combine both fundamental and technical analysis to predict market trends. By considering the historical data as well as current events, investors believe they can make better decisions. And combining both forms of market analysis can help the bettor to overcome the limitations of the individual methods, allowing them to open better positions in the market.