The key to selecting trades that perform, whether they are Longs (trades that you are buying) or Shorts (trades that you are selling i.e. betting on them going downwards) - is to understand market direction and sector direction simultaneously. Once this is established we generate lists of stocks that favour the long and short side. From these lists, we use a combination of technical indicators such as price action, volume, indication, pattern recognition and volatility to time our trade entry. Most inexperienced traders simply look at the direction of the SP500 Futures, FTSE100, DAX or Nikkei indices and place trades based on that overriding main market direction. Whilst this is not necessarily wrong, it does not offer the protection and momentum that smart analysis of sector performance provides! The classic example I often mention are: Microsoft, Intel and Dell all post strong earnings - and you see the NASDAQ move up 15 points in the United States; the transatlantic ripple effect has London's TechMark move 7points upwards - the market reaction to this is of course that private investors become enticed into buying tech stocks! Foolishly they fail to notice that the main tech sectors are down trending. And so the blip is simply that - a blip! And tech stocks continue their downfall only days later - much to the amazement of the now less fortunate investor. Sector analysis is crucial.
Here is my strategy:
1. Find Performing Sector
2. Create list of Performing Stocks
3. Use Combined Signals to Buy and Sell
4. Use Professional Profit Setups
5. Risk Manage EVERY TRADE
First off, we ensure the underlying sector is supporting the movement of the stock. Once we have established the sector direction - we next filter for stocks which are highly correlated to the movement of the sector. These stocks will react violently to any movement in the underlying sector. Understanding the beta correlation of the stock to the sector is quite important here (how much the stock moves based on the sector movement). Think like this - do you want to trade a stock that moves 50 points to every 5 points the sector moves? Of course - You want to see that sector breakout upwards and send the setup on your stock that you have just bought soaring!So,I hope this helps you understand the benefits of spreadbetting and how you can stand to make considerably more money from this tax free Trade.
