What is Spread in Trading?
In the trading world, a spread refers to the difference between the bid and ask prices of two symbols. When the quotes of these symbols move in opposing directions, the second symbol is reversed. Essentially, the spread is calculated based on the sum of these quotes.
Using the Spread Indicator
It's important to note that only the quotes of the second symbol in the spread are reversed. The variable names are straightforward, making it easier for traders to grasp their meanings. This indicator is essential when both symbols of the spread are actively traded — particularly within the timeframe of trading sessions.
Trading with Spreads: Strategies
When it comes to spread trading, you can adopt a few strategies:
- Flat Trading: If the spread increases, consider selling; if it decreases, think about buying.
- Support and Resistance Levels: Look for trading opportunities around these levels after the spread chart crosses them.
Setting Up Your Indicator
The code for the spread indicator is thoroughly commented, making it user-friendly. When setting up the indicator for the first symbol of the spread, you'll use variables to convert to integers for easier viewing and analysis. For instance, if your quotes have five decimal places, you’ll set your multiplier to 100,000.
Coefficient_to_an_integer1 = 100000; Coefficient_to_an_integer2 = 100000;
input double Weighting_coefficients1 = 1; // proportionality factor (position volume) of the first spread symbol input int Coefficient_to_an_integer1 = 100000 // number of quotation marks Sym 1 input string Symbol2 = "USDCAD" //second spread symbol input bool Symbol2_Reverse = true //inverse correlation input double Weighting_coefficients2 = 1 // proportionality factor (position volume) of the second spread symbol input int Coefficient_to_an_integer2 = 100000 // number of quotation marks Sym 2
Exploring Interpretation Variability
There are numerous ways to interpret the values of the spread indicator and its movements. You can analyze breakdowns and bounces from levels, which gives you flexibility in strategy selection. For instance, tracking trends in the spread quotes can provide insights, especially when considering seasonal patterns.
Classic Example: AUDUSD and USDCAD Spread
Let’s take a closer look at a classic interpretation of the AUDUSD-USDCAD spread, where trading occurs within a defined range. You can also enhance your analysis by overlaying standard technical analysis figures and indicators, such as envelopes, on the spread chart to better visualize its values.
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