Three ways spread betters can use moving averages

Moving averages are a favourite tool of spread betters, used to predict trends in the markets. Here, Tim Bennett explains three ways moving averages will help you better forecast the ups and downs in your spread betting trades.

Spread betters are always on the look out for clear buy and sell signals. Moving averages can help.

Moving averages are simply continuous records of average price movements over time. So, for example, say the closing price for a share over five days is 20, 30, 40, 50, 60. The average is the sum of the five numbers, divided by five. Here, that's 40. Now, say on day six the price moves to 70. To get the new five-day moving average (MA) you knock off the first reading of 20, add on the new one of 70 and recalculate. The easy numbers here give you a new average of 50. So the MA trend is upward. Sure, you could have read that straight off the two sets of prices, but when markets are more volatile, MAs reveal the underlying trend more clearly than single readings. And if you can have a short term MA, then of course you can have longer ones read over, say, 50 or 200 days.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.