How to Trade Bearish Trends

18bear2050913 This spread betting strategy should be implemented when the price of a security commences dropping downwards within a well-constructed bearish trend. Spread betting enables you to maximize the use of bear strategies. The initial step that you need to perform is to detect an underlying asset for your spread bet that is presently deprecating within a bearish channel.

The following example illustrates how best to accomplish this task using a series of diagrams. Imagine that after studying all the securities supported by your spread betting broker, you observe that the USD/CHF currency pair is producing the formation that you are searching for by descending within a bearish channel.

Next, you must study the associated trading chart more carefully. This is because you need to detect key technical indicators, such as trendlines. Do not be put off by this task as it is a relatively simple mission to undertake.

For example, the next figure displays the bearish trend of the security with the lower and upper Trendlines overlaid upon it. However, this chart was generated by an independent charting facility as some spread betting brokers do not presently support all the most commonly used technical indicators. Please visit the bottom of this article for other approaches that you can instigate in order to counter this minor hitch.

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Basically, you can easily produce the upper trendline by joining the sequence of lower highs, as shown by the above diagram. You can then perform a similar process for the lower trendline by linking the series of lower lows.

Now, you can begin activating your bear strategy. Wait until the price of the security touches the upper trendline as this is an excellent place to initiate a new short spread bet based on the USD/CHF. However, verify that the upper trendline remains intact by ensuring that price does not climb decisively above it by delaying any further action for about a couple of minutes.

If the trendline is not broken after this time period, then open a new short spread bet. Utilize a well-tested risk and money management policy to assist you in calculating the optimum amount for bet. You will need to devise an exit strategy as well which will help you decide the best time to close your spread bet. A sound technique is to consider keeping your new trade open for at least one hour with the intent of providing the fundamental factors with enough time to force the price of your underlying asset into your preferred direction.

Consider that your broker offers a spread for the USD/CHF of 0.9200:0.9202. You decide to sell at 0.9200 by waging £50 per point. In addition, you issue a stop-loss order located at about 50 pips above the upper trendline minimizing your risk exposure. A little time later, price has indeed declined in value and your broker has offered a new spread to 0.9148:0.9150. You decide to collect a profit at this point by buying at 0.9150 producing a total profit of (50 * £50) equaling £2,500. You then notice that price bounces against the upper trendline once more, as shown on the diagram below.

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 You next choose to implement a new short bet at the location identified by PUT 2 on the chart above by utilizing similar parameters as you deployed for your first spread bet. However, again wait for a couple of minutes to confirm that the upper trendline remains intact and is not breached by price.

This time, your broker offers you a new spread of 0.9140:0.9142. Consequently, you sell at 0.9140 by risking £50 per point once again. You also issue a stop-loss order located at about 50 pips above the upper trendline minimizing your risk exposure.

The price of the USD/CHF continues to plunge so that it eventually hits the lower trendline of the bearish channel. Your broker now presents a new spread of 0.9118:0.9120. You decide to close your bet at 0.9120 claiming a second profit of £1,000.

You next observe price hitting the upper trendline for a third time, as illustrated on the diagram above. You can next choose to implement a new short bet at the location identified by PUT 3 on the chart above by utilizing similar parameters as you did for your first two spread bet. However, again pause for a couple of minutes to verify that the upper trendline remains intact and is not breached by price.

This time, your broker offers you a new spread of 0.9110:0.9112. Consequently, you sell at 0.9110 by risking £50 per point once again. You also issue a stop-loss order located at about 50 pips above the upper trendline minimizing your risk exposure.

The price of the USD/CHF continues to plummet so that it eventually hits the lower trendline of the bearish channel. Your broker now presents a new spread of 0.9088:0.9090. You decide to close your bet at 0.9090 claiming a third profit of £1,000.

As you can now appreciate, the example above clearly presents the excellent opportunities that bearish spread betting strategies present at securing consistent and worthwhile profits. One of the main features is that this strategy concentrates on minimizing losses as a key priority as opposing to focusing on profits.

Although bearish strategies are excellent techniques to trade the spread betting markets, some brokers may not support all the technical indicators required to undertake this task proficiently. However, if you contact your account manager or customer support of your broker then you should discover that they will be more than happy to resolve this problem for you.

 

 

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