Tip 3: Breakouts

The breakout in spread betting is a strategy that involves waiting for a particular equity to break from a given price range. Spread bettors using this strategy will consider stocks which have not moved beyond a certain price for a considerable amount of time but may “breakout” in the near future. So when strong price movements are hinted for a particular stock, spread bettors try to make huge capital gains by trading breakouts.

Spread bettors who use this strategy use technical indicators to learn if a stock is likely to breakout. The possibility of a breakout is often identified simply by the price moving close to the expected limit. This strategy can be used for both long and short positions; so a market can have both a high limit and a low limit.

In any case, the breakout strategy allows traders to take a position where they can set clear boundaries for closing the trade and taking a profit; a strategy that works well with spread bettors who have been known to lack self-discipline. Of course the possibility of the market failing to breakout is often relatively high; and so to minimise risk in these situations a spread bettor will set a stop loss for the market’s previous upper level. If and when the price goes beyond the current upper limit (the breakout), it’s advised that the trader sets up another stop loss at the level where it was broken in order to lock in profit.

Analysts look at the breakout strategy in two ways: some consider the risk to be reduced when you wait and see if the price closes on the same side of the limit for two successive days; others believe that once the old price pattern has been confidently broken, you can place the trade and expect to earn a profit. Either way, traders have popularised this spread betting strategy as the support and resistance levels are well defined, giving them a clear stop-loss position that can be used to trade only in profits.