It is absolutely mandatory that you treat every trade you place like a business transaction and not just a simple bet. If the latter is your choice and mentality, you might as well stop now. A change of attitude and mindset is what makes an efficient spread better and also what separates a good trader from a mere “Punter”. Just remember that every penny counts!!
So, what do you look for?
Daily Bar Charts
Daily charts are one of the first steps of analysing market trends. They offer you the opportunity to look for patterns within the market and give you a vague understanding of where the market is moving. The two most common charts are the bar chart and the candlestick chart.
A typical candle represents one day’s action. The top indicates the highest price for the day whilst the lower part of the stick shows the lowest price achieved on the day. The width of the charts however indicates the range of the price on the given day. A white candle stick indicates that the security closed higher than the open and vice versa.
The above chart shows a monthly chart of daily bars for the stock “Anglo American”. The chart is a typically very easy to follow and learn, as to the plain eyes it shows a security going through a rise in price and steady up trend.
This is another tool that offers indications as to where the market is pulling towards. An uptrend can be spotted when
- Prices being above the Moving Average (MA)
- The Moving average is upward sloping
- When a shorter MA is above the longer term Moving Average e.g. 50 days above a 100 day Moving average
The reversal of the above criteria can also be used when looking at a downtrend.
Once a possible trend has been detected, you then start considering ways of getting into the market.
The above chart shows Anglo American’s monthy market numbers, with a fifty day Moving average added, notice that the moving average points updwards and that prices stay well above it. The resistance to the moving average would have been the best time to enter the market.
Relative Strength Index (RSI)
This simply shows how an instrument has been performing relative to another. Let’s say a stock has been underperforming an index by 20% to 30% over a 3 months period, while it is not guaranteed that the instrument is in a downtrend, it gives you a possible indication of where the trend lies.
Attention to Market
Keeping a close eye to daily market news is a key part of being a successful spread better. The current climate hovering around the market means that any good or bad news in the market moves very fast and triggers a whole wave of sell off or sudden up turn in the market. So you want to be in a position where you can capitalize on any climate you find yourself.