Using Historical Data to Predict Future Market Movements

LONDON, August 25, 2011 /PRNewswire/ --

Research undertaken by MarketWatch in 2010 revealed that the Dow Jones Industrial Average has lost an average of 1.13 percent in September every year since its formation. But is historical performance a good guide to the future?

Sandy Jadeja, Chief Technical Analyst of award-winning spread betting provider City Index (http://www.cityindex.co.uk/), considers the merits of chart patterns: "Generally speaking, patterns are not perfect. But they can be considered a sensible way to make decisions as long as risk management and money management techniques are applied."

The downside of technical analysis and charting is that past data does not necessarily indicate what may happen in the future. Joshua Raymond, Chief Market Strategist of City Index, states: "This has been proved in the last few years. In 2008, the FTSE fell by 13 per cent. In contrast, in 2009 the FTSE rallied 4.5 per cent in September. Certainly the much better than expected non-farm payrolls and private payrolls data out of the US had helped traders start the month on the front foot this time around."

Mr. Jadeja, who frequently leads free seminars on technical analysis from City Index's London offices, agrees some patterns are not as strong as others: "There are, however, some very reliable time patterns that can be used. For example, the Dow Jones has declined from 28 December to 22 January in the last 12 years, so knowing this can be useful because it can help a trader prepare for a potential opportunity in advance. We can then look for a trigger to enter the trade."

"In this example, a simple trigger would be a break below a weekly low after 28 December. Of course, trade management is of high importance to prevent large losses." Whether using charting or any other form of market analysis, traders should always use risk management tools such as stop losses and limit orders to close their trades automatically when the market reaches set price points.

To learn more about the free technical analysis seminar from City Index, and to see the other free workshops available from City Index, visit:

http://www.cityindex.co.uk/learn-to-trade/seminars.aspx

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As a group, we transact in excess of 1.5 million trades every month in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Open a spread betting account with City Index at http://www.cityindex.co.uk/spread-betting/start-spread-betting.aspx