Looking for an instrument to trade in local time that isn’t vulnerable to the morning gap in prices caused by the catch-up to US stock action?

Written By Cat Davey

The SPI 200 is a near-continuous market that offers instant diversification across the stockmarket with no commission, 1% margins, flexible contract size, and now, the ability to trade on a one-tick spread. The AxiTrader SPI 200 is based on a real chartable underlying market - the SPI futures contract. It’s ideal for new traders wanting to minimise risk with the minimum contract size at $1 per point. It’s also the smart choice for experienced traders keen to test a trading system via small position sizes without the overhead of commissions and wide spreads. And with 1% margin, your deposit requirement is less than a tenth of the SFE SPI futures contract. If you’ve never traded the SPI before here are some observations I’ve made that you may find useful.

Stop loss placement

The process of getting stopped out only to see the price continue in the direction of your original trade happens in all markets. However the SPI is typically tricky around obvious support and resistance levels. Because false breakouts are common, if you are basing your stop loss on an old high or low, make sure you give it some wriggle room. On intraday charts I’ve seen many false breakouts occur on two-point breaks, so that would mean adding at least three points to your stop loss level. The number of points away from the support or resistance level to leave your stop loss order depends on your trading time frame and the amount of time the previous level has remained intact – the longer your time frame the more wriggle room you’ll need with your stop. Take advantage of the Axis trailing stop loss facility, especially overnight when it’s tempting to stay up and lose sleep watching it!

Oversold/overbought signals

In theory the oversold and overbought indicators are used to detect a trend reversal. But an uptrend can stay overbought for a protracted period of time or give multiple overbought signals while the trend continues to rise. The same is true for downtrends. The best application of overbought and oversold I’ve found is to use an oversold indicator to buy in a pullback of an established uptrend and use the overbought indicator for selling countertrend rallies in the midst of a downtrend. Experiment with your favourite reversal indicator on past price action to determine which suits our entry and exit signals versus your time frame.

AxiTrader’s platform has over 50 built-in indicators and a near infinite amount available online.

Spike reversals

One of the most reliable entry signals on the SPI chart is the spike. Best shown on a candle-stick chart, a spike is simply an extreme move in the direction of the immediate trend that can not be sustained and nearly all of the move or more is given up by the time the price bar is complete. The daily chart for the SPI shows a large spike reversal on 3rd of November. This highlights the fact it’s safest to exploit a spike in the direction of the larger trend which means buying a spike rebound in an uptrend and selling a spike top in an already established downtrend. The top reversal spike of November 15th occurred as a pullback to the larger bullish trend so was therefore a safe sell. Since the spike reversal is not confirmed until the price bar is complete, it is safest to enter on the open of the next price bar and place a stop just beyond the extreme of the spike.

Intraday moves

The most success I’ve had trading the SPI is using a daily time frame which means wider stop losses that I can leave overnight without stress. Before tackling an intraday approach, it’s handy to study past chart action to formulate realistic expectations of potential moves. At present, an average intraday swing usually lasts 20-30 points before pausing or making a reversal. The swings can be broken into three times of the day. The index usually starts its first swing by ten to fifteen minutes after the 9.50am open and has completed the largest part of that move in the first hour. To check this for yourself, study an hourly chart of the SPI – the first bar is usually the longest bar of the day. Around mid-morning this trend often loses steam and by lunchtime a new swing can start. This may or may not continue the morning trend. By 3.30pm the trend will often change again, as traders move to take profit. A strong trend established at this time often continues after the close into the evening session of the SPI.

This is not a hard-and-fast set of rules. The best approach is to study past and real-time index action. Look for unusual patterns or reactions that yield sustained moves. Then study their past occurrence and if they prove consistently profitable, build a strategy around them. It’s always better (from an emotional and financial point of view) to have one set-up that you trade infrequently based on a high probability of success, than jumping at common signals that all the market is watching.

About AxiTrader

AxiTrader is proud to have recently launched CFD based indices on our award winning platform and will be offering the Australian SPI200 with a 1 tick spread during normal market hours to celebrate. With the recent addition of the SPI we are now offering all the following international indices with competitive spreads:

• Australian SPI200
• Dow Jones 30
• S&P 500
• SMI Futures Index
• AEX25
• FTSE
• DAX
• CAC
• US Russell 2000 Index
• NASDAQ 100
• NIKKEI 225
• EUROSTOXX

AxiTrader are an Australian company established to provide innovative online financial products and services, and are there to assist you in your trading needs. In short we offer Margin FX, Commodities, Indices and Australian share CFDs and all with competitive rates and spreads. For your peace of mind all funds deposited with AxiTrader are held in a segregated trust with HSBC in Sydney.

Some of the benefits of our trading platform are:

• No Commission
• Start trading with as little as $1000
• Automatic fills up to $5 Million
• From 2 pip spreads on FX majors
• Trailing Stop loss orders
• Multi language interface
• Dow Jones News
• Built in charts and indicators
• Trade currencies, gold, silver, oil, shares and indices

To visit AxiTrader click here for your forex broking needs.