There is always a possibility of a reversal in market trends, and the reversal strategy uses this premise to help the spread bettor trade for profit. A reversal strategy is based on the under or over pricing of a market. The point at which it is most likely to reverse can be determined with the help of technical analysis and moving averages. If you can accurately interpret charting data and calculate moving averages you will be able to identify the point at which a market is likely to reverse and will stand a chance to profit.
To begin with, you will need to consider the recent lower and upper limits of the appropriate index (FTSE, CAC etc) to get an idea about the overall market performance. Check if the market is moving into either of these boundaries and keep a tab on the movement of the index. As soon as you find that the markets have started reversing, you can act immediately to take advantage of it.
How successful you are with this spread betting strategy depends on your ability to understand the market reaction and whether you act accordingly. Often what appears to be a reversal could just be a retracement, which is temporary, and not a reversal of the long-term market trends. And being able to distinguish between a reversal and a retracement is essential to making the right decision.
Betting on a reversal is considered as a low risk strategy as traders make a move only after a reversal is strongly indicated. If however, you are unable to spot the difference between a reversal and retracement, this strategy can become very risky.