Tram line trading is, indeed, one of the most popular spread betting strategies. This is because most of the traders would recommend this, especially those who are into technical analysis. Essentially, some would say that it is a simple task of connecting the dots. This will require a trader to refer to a graph in order to see the market trend, in terms of the highs and lows of the price levels.
How to make tram lines?
Tram lines are usually derived from existing graphs and charts, which are readily available in most of the online trading platforms. Traders will then notice that graphs show fluctuations of the price of a particular market. These are the turning points, whether the trend is going up or down. Hence, these are the critical areas that the eyes of the traders should be focusing on because these are the levels wherein the market will most likely reverse. Well, this could be because the asset is already becoming overpriced or underpriced.
On the one hand, the resistance level is when the market is opt to devaluation while, on the other hand, the support level is when the price of the market will most likely reverse and go up. In other words, the resistance levels are those points that traders will find in the upper part of the chart while the support levels are those in the bottom.
Now, traders only need to make a line among the resistance points and another line among the support points. The lines should be parallel with each other. Between these lines is the safe area because these are the relatively stable level wherein the market will most likely not reverse abruptly.
Caution for Tram line traders!
However, while tram line trading is among the most notable technical spread betting strategies, traders should be mindful of some cautionary measures when implementing it. One of the most important things that they should always remember is to not solely rely on technical analysis. Beyond the graphical illustrations of the market’s turning points, traders should be able to understand that there are underlying circumstances and events that lead the market to behave in such a way. Hence, they should be able to find out the events during those turning points.