Spread betting strategies and the 200 day moving average

Today we are going to focus on some spread betting strategies using the 200 day moving average  and we will use the S&P 500 for our example.

The first thing to do on any market is to determine the direction of the long term trend for the market that you are looking to trade. Once you know this, you then select your spread betting strategies in the direction of the long term trend only and ignore signals in the opposite direction.

The reason for doing this is that counter trend moves have a much higher probability of not developing in to a good trend and moves against the trend are generally shorter in duration. In this case we are looking at the S&P 500, which is currently in a long term downtrend.

Each trader will have their own ways of determining the trend and this can be based on moving averages or any one of a number of indicators. One of the most popular indicators for determining this is simple moving averages. The most common time period for longer term trend analysis is the 200 day moving average. If the market is above the 200 day moving average, then the market would be in an uptrend and if below then it is in a downtrend.

I have developed my own proprietary indicators for determining the long term trend and each trader can do their own research to see which indicators and time periods they prefer. The 200 day moving average is widely used and is a good place to start, especially as many traders look at it.

On the S&P 500 September contract, the 200 day moving average is currently sitting at 1107, so as the market on Friday closed at 1070.3 this is below the 200 day moving average and the trend is down. Therefore, for the best chance of success, use only spread betting strategies from the short side.

In our last post on spread betting strategies for the S&P 500, in addition to observing the long term trend we also pointed out that the market was struggling with resistance from the 200 day moving average and the 1100 level. Since then the market had another go up towards the 1100 level and failed, moving back towards the support area at 1165 and even moving below that briefly.

Therefore, the short and long term trends are down so the odds favour lower prices in this market for now. Friday’s close at 1070.3 was a new low close for 4 weeks and this indicates short term weakness. For the short term, Friday’s lows of 1061.8 may provide support but if support here fails then we may see a move lower towards the 1000 level.

Until next time, good trading

Phil Seaton

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

No comments yet.

Leave a Reply