FTSE Trading Strategies

                                                                                                 1 | 2

Overview

Let me start off by saying that even with all the tips mentioned below, if you're going to be successful then you need an awful lot of determination, discipline and patience. Anyone can make profits, but most people ultimately fail because they make impulsive bets, chase losses or simply bet because they're bored and more often than not end up losing.

When I traded the FTSE markets on Betfair full-time, I traded the midday up/down market and the intraday markets from 9.00 until 1.00 (all times quoted are GMT), before spending the rest of the day trading the daily market only. The first hour of the trading session, the 8.00-9.00 market, is far too volatile for me. I like to let it settle before getting involved. For similar reasons, I very rarely traded the intraday markets after 1.00 because these are also highly volatile mainly because big economic data releases from the US often come out at 1.30, causing sharp, and often wild swings in the US futures, and hence the FTSE. Also the Dow then opens at 2.30 which is when the fun really begins. Therefore in order to predict future FTSE movements you need to analyse the Dow as well, which is fine over a longer time frame, ie betting on the daily market, but on a minute-by-minute basis it's extremely difficult.

The easiest markets to master are without question the midday up/down and the daily up/down markets. If you've taken the time to open the sites listed in the previous page you should be able to profit from these markets over time. I started out with £100 in my account and built it up to £5000 within 6 months trading these markets only, and to be honest couldn't believe how easy it was. Only when you've mastered these markets should you move on to the fast-moving and volatile hourly or intraday markets.

Trading set-up

As I've mentioned previously I had a number of windows open at any one time, to make trading decisions. I had my customised ADVFN monitor, including the top 20 FTSE 100 stocks to see what was driving the market, an ADVFN streaming chart to make predictions based on technical indicators, such as RSI, stochasics, MACD etc (see below), the live prices page of igindex detailing the latest FTSE price (in the form of a spread) as well as the latest Dow Future price, a binarybet page which is a good guide for what the current prices on Betfair should be (Betfair prices are slightly higher), and obviously a Betfair window. In addition to these, when the Dow Jones opens at 2.30 I would have the quote page open for live streaming charts of the Dow, with Bloomberg often on the TV in the background to monitor any breaking news that could impact the markets.

Charting basics

You'd be amazed how quickly, just by watching the markets for a few days, you become absorbed by them, start to see patterns, and are able to make strong predictions. The biggest aid for making predictions are charts, and a lot of my trades were based on the live streaming charts of ADVFN and quote. The trick is to identify turning points, resistance levels, and overbought and oversold positions on a chart. To do this I used various technical indicators, but the three main ones I used were RSI, stochastics and MACD. (I use these for spread betting and share selection as well but that's a whole different topic). You don't really need to know what they are or how they're derived (although there's plenty of information on the net if you do), you just need to know how they can be used to find trading positions, ie backing high and laying back lower or vice versa in order to lock in profits.

I relied mainly on RSI and Stochastics, and used MACD only to confirm a position. As it's a lagging indicator, MACD shouldn't be used on it's own to make trading decisions. Set up a few charts yourself on ADVFN and look through historic records and you'll soon see patterns emerging which will help you make your own trading decisions in the future. On a very basic level if a share price or index level shows an RSI or stochastic of 20 or less then this suggests it is oversold and similarly an RSI or stochastic of 80 or above indicates it is overbought. Regarding MACD, you want to find crossovers either upwards or downwards, to back up these other indicators.

Obviously there's a little bit more to it than that, but neverless just these basic indicators alone have proved very profitable over the years. Once you have mastered these basic indicators you might like to add additional indicators, such as moving averages for example, to improve your trading success rate even further. There's plenty of indicators you can experiment with in ADVFN.

I like to apply these technical indicators to the Dow Jones to find profitable positions to take on the daily FTSE market, as they're so closely correlated. Quote is an excellent free charting facility which allows you to add these indicators to the Dow (INDU) chart (enter 5 in the "Len" box to get the best picture, and vary the interval from 5 to 30 depending on what time scale to want to analyse). It also provides two excellent additional indicators, tick and trin. These are a good indication of the general state of the market at a particular moment in time. Again you don't need an intricate knowledge of what these indicators are or how they're derived. All you really need to know is how you can use them to find profitable positions.

TICK:  + and rising figure = bullish / strong market

         -  and decreasing figure = bearish / weak market

TRIN:  < 1 = bullish / strong market

         > 1 = bearish / weak market

These two indicators shouldn't be used in isolation, but should be combined with RSI, Stochastics and MACD to identify strong trading positions. For example, let's say the FTSE was up just 1 point at 3.00 and you were looking to the Dow Jones for guidance on future movements. An ideal scenario would be one where all five of these indicators correlate to signal a strong buy (and therefore you may choose to back the FTSE up, either to hold until the end of the day, or to trade out for a profit later) or a strong sell (lay FTSE up / back FTSE down):

STRONG BUY:   RSI and Stochastic = 20 or less

                     MACD crossover upwards

                     + (and increasing) tick, trin < 1

STRONG SELL:  RSI and Stochastic = 80 or more

                     MACD crossover downwards

                     - (and decreasing) tick, trin > 1

To be absolutely positive about a trade you should use different time intervals for confirmation. In my experience the 1 minute charts aren't the best ones to use. The 5 minutes charts (and upwards), and their associated indicators are a lot more reliable.

Momentum trading

Charting is a very useful tool and can be used to identify good trading positions, but they're not the only way to make money from financial trading on Betfair. Another tactic I used to generate profits in both the daily and intraday markets is momentum trading. This is where the ADVFN monitor comes into it's own. I had the top 20 FTSE 100 companies listed on my monitor, but the ones I watched most closely were generally the top five or six largest because these were the ones that moved the FTSE 100 index the most. At the time of writing, these are BP, HSBC, Glaxo, Vodafone, Royal Bank of Scotland, and Barclays. It's impossible to know for sure, but from my experience a one tick movement (eg BP going from 640.5 to 641) in each of these shares is approximately equivalent to the resulting movement in the FTSE 100: BP = 0.5, HSBC = 0.5, Glaxo = 0.5, Vodafone = 0.7, RBS = 0.3, Barclays = 0.3.

I've used this information to make huge profits in the past in a matter of seconds, particularly in the closing stages of tight intraday markets. Let's take a simple example of a 10-11 market. It's 10.59, and there's 10 seconds left (it's always useful to have a clock that displays seconds and is 100% accurate by your monitor). The opening 10.00 FTSE price is 5700 exactly, and the current price is 5699.1. With just 10 seconds left the FTSE down price is very low, as you'd expect with just 10 seconds remaining, at 1.05. Watching your monitor, you see that Vodafone, BP and Glaxo's price have all ticked up in the last few seconds and none of the other of the big shares on your monitor have moved. Because you know that these three upticks alone will push the FTSE up by roughly (0.7+0.5+0.5=1.7) it's highly likely that the next price stamp taken will push the FTSE above the crucial 5700 level. You quickly go to your betfair window, and lay the down price at 1.05 for £100, although because there's likely to be a few other people watching the same data enter a price slightly higher such as 1.1 to ensure that you get matched. If you're clever you'll have already entered the bet details in anticipation of this so you may even get 1.05 if you're lucky. True enough, the first price stamp taken a few seconds after 11.00 is 5700.5. The sum total of the smaller constituents have dropped the price by 0.3 in this example, but you've still won your bet and pocketed £100. 

Bear in mind that most people trading the financials only watch the actual FTSE 100 index figure and don't pay any attention to the individual share movements that make up the index. This method can also be used to pocket quick low risk profits at any time. For example, let's say the current intraday up price is 1.4. You notice that the majority of the shares in your monitor have suddenly ticked up. You quickly back the 1.4, the FTSE ticks up by 2-3 points, and the new price is trading at 1.25. You could then lay back at 1.27, for example, to ensure you get matched, and lock in a very quick profit. If you repeat this process many times during the day your bank can build up very quickly. Obviously it's not always as easy as this, and sometimes this may be a false signal, and the FTSE could quickly reverse down. In this instance, I would advise getting out as soon as possible. Take a small loss if you have to. For example, lay back at 1.45 in this example, if you failed to get matched at 1.27. From my experience I've found it's best to take a small hit than hold on in desperation hoping things will swing back your way. 

Economic data releases / Interest rate decisions / Company results / Bernanke / Breaking news

All of these factors mentioned in the sub-heading above have a major impact on both the Dow Jones and the FTSE, and therefore provide excellent trading opportunities on Betfair. Because the news releases often cause sharp quick moves in the FTSE, it is often possible to do a quick momentum trade and lock in a profit within minutes. I should warn you that you need to be very quick to react to the data as good prices will quickly disappear so be prepared beforehand. Also you should learn to interpret the data yourself (this comes with experience) as sometimes the initial movement and direction is followed through, other times the move is reversed as analysts digest the information. 

A good place to find upcoming data releases is here or on the "DAY" thread on ADVFN's premium bulletin board. You will soon learn which data releases affect the markets the most, but here is my list and times of the data releases that you should look out for:

7.00 - UK Company Results

9.30 - UK Economic Data

11.00 - UK Company Results

12.00 - UK Interest Rate Decisions

12.45 - European Interest Rate Decisions

1.30 / 2.15 / 3.00 - US Economic Data (biggest market movers)

3.00 - Ben Bernanke (new chairman of the Federal Reserve) Testimonies

3.30 - Oil Inventories

Some final tips

Don't be afraid to back very short odds. I aimed to maintain a 95%+ strike-rate when I traded the financials, and I had no problems backing 1.03 or 1.02 for £3000 if I knew that I could lay it back at 1.01 a few minutes later for a guaranteed profit. I've even been known to lay one side at prices upto 250 because I knew that sometimes just seconds later, I could back it back for 1000. You won't get filthy rich using this method alone but you will build your bank up nicely over time. Obviously you shouldn't just back short odds at random, as they do sometimes get turned over. You have to be sure that there's no other factors that could suddenly cause a sharp move, and weigh up the risks. Often the only factor holding the price up is time, and therefore if you don't think the underlying price will move much in the near future than you can be sure of backing now and laying back later on for a guaranteed profit.

If you can always green up. This is a term often used by fellow betfairians, and basically means having equal profits whatever the outcome. For example, let's say that you've backed the FTSE to finish up at 1.3 for £100, so you'll win £30 if up, and lose £100 if down. The FTSE moves nicely up, and the up price can now be layed at 1.02. Unless I was absolutely certain that there was no chance whatsoever of me losing the bet, I would always recommend laying the bet off to lock in a profit. Therefore, in this example, you should lay off £128 at 1.02, giving you a profit of £27.44 if up and £28.00 if down. If the FTSE does subsequently move further up, you could always try and do a quick momentum trade, eg back at 1.01/1.02 and back the down at 250/500, and squeeze out a bit more profit.

The intradays can be quite daunting at first, so I would recommend waiting until the last quarter of the hour before opening a position to start with. By then you will have a clear picture of what's happened so far, and where the FTSE is likely to finish. You've also got the time factor mentioned above on your side. My intraday tactic was to simply watch the market for at least twenty minutes before taking a position, as by then I've usually got a good feel from the streaming chart and the associated indicators of where it was heading.

Don't bet just for the sake of it, and if you lose don't chase profits. I can't emphasise these two points enough. If you're disciplined and use good strong strategies, then you will make good long-term profits. However, the occasional loss is inevitable, and it's how you handle these losses that ultimately defines how successful you will be. 

Develop your own trading style. The methods I've mentioned in this article are just the methods that I used to make profits. However, if you ask any other successful Betfair trader, they will probably have totally different methods. For example, I made a lot of money from trading short price odds, and very rarely traded the first twenty minutes of an intraday market. Therefore I rarely backed anything above about 1.6 because my aim was always to make sure I won every single bet I placed.  However, there's probably successful traders who make a good living laying short odds when the time's right or make successful predictions at the start of each hour when the high prices are available.

Finally, in my experience, charts and indicators are great and will help you to find winning trades, but most of the time intuition, and simply following the money will reap equally great rewards.

That's it. You should now have enough resources and ideas to at least get you started in the potentially lucrative world of financial trading. If you have any questions you'd like to ask me, please go to the contact page and send an email to the listed address. Alternatively, you can visit the "Financials" section of the Betfair forum. I still drop by there quite often (under the alias buccini) and you can ask me a question on there. You could also ask one of the veteran traders on there who I've known for a few years, such as contrarian, nutter punter, surfer dude, Tim_UK, Gin, etc. 

You can sign up here if you haven't already done so. Just click on "join now" at the top of the screen. (Betfair does not accept US customers).

Good luck with your trading.