Using 'tramline trading' to profit from market volatility

In these volatile times, when markets swing violently up and down, traders need to be on their toes. John C Burford explains how alert spread betters can profit from the markets' moves using Elliot waves and tramline trading techniques.

I covered the FTSE 100 market action in a recent post which covered the first period of post-Japan earthquake trading. I showed that the move up from the summer was well contained within my tramline pair I had drawn weeks ago.

The rally I could count as complete in five Elliott waves at the 6,100 top made in February. I then suggested that the most likely move would be down in a change of trend, having completed a classic five-wave impulse pattern.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

The market did indeed move down to toy with my lower tramline, before plunging starting in early March (this was well before the Japan crisis, please note) towards my third tramline, which I had drawn parallel and equidistant from the two original tramlines.

Advertisement - Article continues below

Here is that same chart updated to this morning:


(Click on the chart for a larger version)

Since my previous post, the market has indeed plunged very rapidly to my lowest tramline (remember, it was drawn long before the market hit it!) and then overshot it before bouncing back.

This 'overshoot' effect is very common when markets are in free-fall (or free-rise!), and I fully expected it here.

When a trend changes, hunt for new tramlines

But here is the interesting point when a market changes trend, it is a good idea to look for tramlines in the new down trend. And this is what I find in the hourly chart:


(Click on the chart for a larger version)

My upper down-sloping tramline I could draw a couple of days ago, which I did.

Advertisement - Article continues below

To find a valid lower tramline, I used my parallel line tool on my spread betting platform and hovered over the small high made on 1 March.

Lo and behold, it passed right through the first drop to the 5,600 level made last Tuesday. That was my second tramline in place.


Claim your FREE report: The 6-step game-plan for
spread betting profits

The market bounced from the 5,600 level, then fell again right to my new lower tramline and beyond in another 'overshoot'.

Of course, for short-term traders, this was a golden opportunity to take profits on their short trades. The odds then heavily favoured a significant bounce, especially now that momentum was so oversold (marked in the purple box).

Advertisement - Article continues below

As I write, we are seeing that good bounce. An ideal target is, of course, near the upper down-sloping tramline, as this is the operative set at present, while the market is in a broader downtrend.

But the market is hovering around my lower up-sloping tramline, and if this is still a force, the market may not rally too far from it.

We are living in volatile times, which means the trading opportunities are coming at us much more rapidly. If you are a trader, you need to be on your toes, as the swings are becoming wilder.

But using my tramline trading ideas, combined with Elliott wave, Fibonacci, and momentum indicators, it is possible to extract profits from these moves. I hope I am showing you how.

NB: Don't miss my next bit of trading advice. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here .



Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019