Spread Betting Strategies
Find out more about spread betting strategies here
Momentum Trading
This is a strategy which involves watching the direction of traders in the market and betting on how they will pull prices. For example, if a trader sees everyone buying into one particular stock, then he can buy a position and ride it until he notices the buy momentum slowing and then can get out before it drops.
Momentum traders watch Level II data in order to find trends in the market. If they see a stock where most of the bids are coming in on the ask price, or the high end of the spread, then they will take this as a signal that the share price is going to go up. But if they see a majority of the bids coming in on the low end of the spread, then they will predict the price going down.
In order to access Level II data, a membership at a financial data website is required. Please visit ADVFN at www.advfn.com, to learn how to register for such an account.
To further understand the strategy of momentum trading, please read the following example:
Investor A, is closely watching the level II data of stock X. The bid price of stock X is currently 210p and the sell price is 220p. Using level II data he notices that currently 85% of orders are coming in at the sell price. This means that many people are buying the stock.
Using this data the momentum trader predicts that the high demand for the stock will cause the price to increase. The momentum trader would then proceed to place a spread bet on the buy side of the spread.
