Spread betting strategies for beginners

TV Screens showing stock values
Rebecca Cattlin
By :  ,  Former Senior Financial Writer

A well-thought-out strategy can help you plan your trades more effectively. So, let’s take a look at a few popular spread betting strategies for beginners.  

Spread betting strategies explained

A trading strategy provides clear guidelines for when you’ll enter and exit a trade. It’s not just ‘I’ll open a long position when the market is rising and go short when it falls’. A strategy will pinpoint the exact price levels at which to set your orders.

Strategies are designed to introduce routine and structure to your trading and help you avoid making snap decisions based on emotional responses to market movements.

Learn more about trading psychology

It’s important to remember that spread bets are a leveraged instrument. This means that while you only need to put down a small initial deposit to open a trade, your profit and loss are calculated based on the full exposure of the position.

A spread betting strategy can be a great way to manage this magnified risk. It can help you establish levels for your orders and calculate how much you’ll be risking per trade. Strategies also give you the ability to go back and assess your performance, where each strategy worked and where it needs finetuning.  

3 best spread betting strategies

There’s no straightforward answer as to what the best spread betting strategy is because there is no ‘one size fits all’ for traders. Strategies come in a lot of forms, whether it’s the use of certain indicators or more overarching techniques.

Ultimately, the best spread betting strategy for you will depend on your goals, time availability and capital allocations.

The best way to get started choosing a strategy is to learn how a few different ones work and practise using them in a risk-free environment, such as a City Index demo account.

Here are three spread betting strategies to get you started:

  1. Trend following
  2. Market reversal
  3. Breakout trading

Trend-following spread betting strategy

Trend following involves finding a market that is moving in a single, defined direction, whether that’s making higher highs or lower lows.

A trend-following strategy aims to identify a burgeoning price movement and join for the body of the price action, before exiting when the trend looks like it’ll reverse.

One of the most popular trend-following tools is a trendline. By drawing lines between two price points, we can see patterns that indicate where the market is moving.

For example, when you join two low points on a price chart, you’re looking at a bullish trend if the line slopes upward. The second low should be higher than the first. This would indicate you could consider a long spread bet.

Trend trading

If you were to join together two highs, and they formed a slope, you’d be looking at a bearish trend. The second high would be lower than the first. This indicates you could consider a short spread bet.

Confirming trendlines with indicators – such as moving averages, Fibonacci retracements and momentum indicators – is also common.

A trend-following spread betting strategy would be considered a medium-term method, usually preferred by position traders who take a longer-term view over days or weeks.

Market-reversal spread betting strategy

A reversal strategy involves finding the key price point at which a market is likely to change direction away from the current trend. Usually, these are levels at which the market regards the asset as becoming over or under-priced – also known as support and resistance levels.

As the market price approaches these limits, reversal strategies can help spread betters take advantage of the price correction.  

The signal for a bullish reversal is found at the bottom of a downtrend and indicates the market will begin to move upward. For a bearish reversal, the signal is given at the top of an uptrend and indicates the market will start to move downward.

Price action strategies, such as candlestick pattern trading, are very commonly used for reversals. The head and shoulders pattern, for example, signals an impending bearish reversal – it appears as three peaks on a price chart, with two distinct troughs in the middle.

GPBUSD head and shoulders example

An important part of trading reversals is to ensure the change is a permanent move, not just a temporary retracement. It’s common to use Fibonacci levels to confirm a retracement – if the market moves beyond these key points, a longer reversal is more likely.

But it’s still vital to have stop losses in place to ensure you’re protected if your reversal signals are false, and the market continues in its previous trend.

Breakout spread betting strategy

Breakouts occur when there is a strong boost in momentum that takes the price through previous support and resistance levels. The theory is that once these known points are breached, the price will continue moving in that direction until a new exhaustion point is reached.

So spread betters will attempt to identify a likely new trend before it happens, taking a position ready for the level to be broken.

To find a breakout entry point, most spread betters will use volume indicators – such as on-balance volume or the volume relative strength index (RSI) – as volume typically increases just before a support or resistance level is broken.

Candlestick patterns can also offer insights into an impending breakout, as well as when the new trend might reverse.

For example, the rising three methods pattern indicates that an uptrend is going to continue. If it’s seen before a resistance level, a breakout may occur because bearish momentum is weak, so the bulls will push the market higher and higher.

Rising three methods

The pattern is comprised of a long green stick followed by three smaller red ones, and another green candle. The three red sessions must sit within the open and close range of the two green candles.

Usually, traders will wait for a final fifth candle, which should also be green to give proof that sellers didn’t reverse the trend.

To manage your risk on a breakout trade, you’d normally put your stop loss at the previous exhaustion level. So, if you were going long on a breakout upwards, you’d put your stop at the previous resistance level, in case the market turned against you. And if you were going short on a downward breakout, you’d put your stop loss at the previous support level.

In the case of the rising three methods pattern, for example, traders might place a stop order below the first candle, but it will depend on their risk tolerance.

How to start using spread betting strategies

To start using spread betting strategies follow these steps: 

  1. Open your City Index account and add some funds
  2. Log in to our award-winning Web Trader platform or download our mobile trading app
  3. Select an asset and view its price on industry-leading TradingView charts 
  4. Choose to ‘buy’ to go long, or ‘sell’ to go short 

Alternatively, you can spread bet on our full selection of stocks, indicesforexcommodities and more with a City Index demo account.

This is a great option for spread betting beginners who want to practice trading first without putting up any capital – instead, you’ll be trading with virtual funds and zero risk. 

Learn more about how to spread bet

Spread betting strategies FAQs

What are popular shares spread betting strategies?

A lot of shares spread betting strategies are based on trend trading, given that the stock market tends to move in longer-term trends based on company fundamentals.

However, it’s still possible to utilise short-term strategies, such as breakouts, when volatility strikes around key news announcements and earnings reports.

Which forex spread betting strategies are best?

The best forex spread betting strategies are those that enable traders to react quickly to changing environments. Examples include grid trading and range trading strategies. However, it is possible to spread bet forex over longer periods too with a trend trading strategy.

What is a spread betting hedging strategy?

A spread betting hedging strategy is a way of managing the risk of markets moving against you by opening a new trade that offsets loss to an existing position. For example, if you were long on Apple shares, you might hedge temporarily using a short spread bet on Apple. 

Related tags: Insights Stocks Forex

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