Forecasting the Future of Spread Betting With Trading Chart Patterns

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Jan 05, 2012, 09:00 ET

LONDON, January 5, 2012 /PRNewswire/ --

Trading chart patterns recognition should form an integral part of any trader's routine. Trading chart patterns are proven to be profitable as human behaviour is repetitive and predictable, allowing historic patterns to be used to forecast stock price movements for spread betting in the future.

'Charting' is one of the oldest tools for spread betting speculation and can save a lot of time and effort in forecasting future stock price movements.

Stock trading charts will fall into either Reversal or Continuation patterns and while almost any historical stock trading chart can be found for free online, it can still be difficult to identify a pattern during its early stages.

Reversal patterns suggest that a trend may be coming to an end and that prices may change direction. They indicate the market momentum is slowing. These patterns include: Head and Shoulders, Inverse Head and Shoulders, Double Top and Double Bottom.

Continuation patterns form in periods of price consolidation during a trend. They suggest that the market is undecided and offers opportunities to take or add to a position. When price breaks out from the congestion it is normally in the direction of the trend. These patterns include: Triangles, Flags, Pennants and Wedges.

Care should be taken when looking for these shapes as patterns can often be in the eye of the beholder, especially when they have not yet fully formed. However, year on year trends can be easily identified, creating short-term opportunities.

Sandy Jadeja, Chief Technical Analyst of financial trading provider City Index explains: "As an example, the Dow Jones has always declined from 28 December to 22 January in the last 12 years. This type of analysis can be useful because it can help a trader prepare for a potential opportunity in advance. We can then look for a trigger to enter the trade.

"In this example, a simple trigger would be a break below a weekly low after 28 December. Of course, trade management is of high importance to prevent large losses."

Chart patterns can be found in almost any market, but Sandy Jadeja particularly recommends charting the forex and commodities markets, as their volatility means large price moves and increased activity are likely.

"I would suggest picking a few markets and practice observing simple patterns," adds Mr. Jadeja. "Then once you gain some experience you will start to see that the markets do trade in very specific patterns. It is at this stage that trading can become very interesting."

Charting is one of the most popular market analysis techniques available to traders. Though by no means perfect, the results can be considered a sensible way to make trading decisions as long as risk management and money management techniques are applied,

Learn more about trading the markets with free spread betting seminars at: http://www.cityindex.co.uk/learn-to-trade/seminars.aspx

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, City Index transacts in excess of 1.5 million trades every month in over 50 countries. They also provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, spread bets.

For more information visit http://www.cityindex.co.uk/

SOURCE City Index