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How to use technical analysis for Betfair trading.

TECHNICAL analysis is a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Usually it is used on stock and commodities exchanges, and on the Forex market. However, it is also possible to apply such analysis to trading on the betting exchanges, particularly Betfair, because the principles are similar.

Technical analysis usually uses 'candlestick' charts. Candlesticks are composed of the body (black or white), and an upper and a lower shadow (wick).

The area between the open and the close is called the real body; price excursions above and below the real body are called shadows.

The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades.

If the security closed higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom.

A candlestick need not have either a body or a wick. To better highlight price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick body with colours such as red (for a lower closing) and blue or green (for a higher closing), as illustrated by the graphic below.

But the most useful areas for trading are technical indicators, or indicator charts based on the main candlestick chart. There are a large number of technical indicators, within technical analysis, which can help you to determine a moment when it is better to back or lay (buy or sell).

The first of them is the RSI (Relative Strength Index). This is a technical momentum indicator that compares the size of recent gains to recent losses in an attempt to determine the overbought and oversold conditions of an asset (or contestant for sports traders).

The indicator is plotted between a range of zero to 100 where 100 is the highest overbought condition and zero is the highest oversold condition. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. So you can place a lay bet when the RSI is below 30 and place a back bet when the RSI is above 70. You can see the RSI indicator in the middle chart (right).

Many traders use Bollinger Bands, invented by John Bollinger in the 1980s. They are developed for measuring price action volatility. The bands automatically widen when volatility increases and narrow when volatility decreases.

By definition, prices are high at the upper end of the band and low at the lower end. You can see the Bollinger Bands in the top chart of the picture below. As you can see the price fluctuates between the upper and lower band.

Another indicator is the MACD (Moving Average Convergence-Divergence) which is a most effective momentum indicator. The MACD is a computation of the difference between two exponential moving averages (EMAs) of closing prices.

This difference is charted over time, alongside a moving average of the difference. The divergence between the two is shown as a histogram or bar graph.

Signal line (green line of the bottom chart) crossovers are the primary cues provided by the MACD.

The standard interpretation is to buy when the MACD line (blue line of the bottom chart) crosses up through the signal line (green line), or sell when it crosses down through the signal line.

HOWEVER, you don't have to assume that if one indicator is showing a signal to sell or buy it is a definite signal to act.

Sometimes indicators generate false signals. So you should try and combine information from more than indicator. Also, it is necessary to interpret indicators quickly because a signal can have a short life.

Technical analysis, like the weather forecast, can never be 100 per cent precise. It is best to familiarise yourself completely with the different signals before committing money to your interpretation of the signals I hope that this short overview has explained some of the basics of technical analysis and will have interested you enough to try to improve your technical analysis skills.

The best trading tool that can help you with this is FairBot. For additional information about FairBot please visit Andrey Bandura, the author of FairBot


Candlestick types How Fairbot shows candlestick chart and other indicators
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Title Annotation:Sports
Publication:The Racing Post (London, England)
Date:Nov 27, 2010
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