Here are a few financial spread betting tips that will help you make a success of your spread betting career. Some people when they hear the word betting think that spread betting is a chancy business. The first spread trading tip is to be sure that you treat it like a business, rather than a gamble, because then you pay a lot more attention to the details and a lot less attention to ‘instinct’, which can easily lead you astray particularly when starting out.
So try to monitor your costs, broker fees, spreads, slippage, losses etc and turn them on their head and look at them as cost of running a business. This is the only way to look at it my humble opinion. I put a lot of time and effort into trading and sometimes I don’t get the results I would like. But I just keep plugging away and I know I will get to my goal eventually.
Make sure that you keep your trading system as a simple as you can, while still making a reasonable profit. It’s easy to get very complicated chasing the odd percentage advantage, and you reach a point of diminishing returns. If you have a simple system that produces results then you will find it easy to apply and not get confused in the emotion of trading. A complex system takes longer to figure out, so you may miss your opportunities, and worse still you may make mistaken trades because of the complications.
“The main reasons why most traders lose money are because they tend to overgear and run losses for far too long whilst taking profits too quickly.”
Here are a few more spread trading tips. On the same theme as the previous tip, you should not get too hung up on all the bells and whistles that technology provides for you. When you discover charting and technical analysis, you find there are more indicators and pattern trackers than you can easily name. Two or three indicators with which you are thoroughly familiar should be sufficient for you to be successful at spread betting. Adding more indicators, which may even be in conflict with the original indicators, will not help your trading in the long run. In certain situations you may find one indicator is better than another, but jumping around between indicators will handicap your spread betting.
Make sure that you trade in financial markets that you feel you know something about. It may seem very tempting to bet on the Dow, but if you do not know much about the American market then it may lead you into losses. Similarly, if you have little idea about the way currencies move, before spread betting on the Forex markets make sure that you make yourself educated. Just because all the markets exist at your spread betting provider, it does not mean that you have to trade them all. Pick and choose those that make most sense to you.
If you feel nervous about spread betting when you start, you might want to begin by using guaranteed stop losses. Generally, guaranteed stop losses take away from your profits, as you have to pay for them when you take out the trade, whether or not the trade is going to lose and need the stop loss. However, a major loss with a gap open overnight could dramatically affect your account, and if you’re not confident enough in the beginning that you can avoid this, you may want to regard the guaranteed stop loss as paying for insurance. The complementary financial spread betting tip is to make sure you give up always using guaranteed stop losses just as soon as you feel comfortable reading the market.
If you’re looking for financial spread betting tips, you’ve come to the right place.
Financial spread betting has a lot to offer for traders and investors. The following tips will help you with your financial spread betting -:
- If you are starting out I would stick to one instrument to master your strategies – For instance, when starting I chose the FTSE while a friend of mine went for the £ v $. After you find you are trading comfortably, only then start looking at other instruments.
- Make sure you familiarise yourself and research the market you intend to trade. – Understand how external factors can affect it. For example, if you intend to spread bet on Ryanair Holdings you should beware that a rally in crude oil prices will put downward pressure on RYAAY (Ryanair) shares. Keep in mind that in-depth research will allow you to react more effectively to changing market conditions. Spread betting with any kind of frequency requires you to be constantly on the loop with the developments that may affect the market/s you are trading.
- Don’t ignore fundamentals. – Always be aware of the regular events that can move the particular markets you trade. Check the calendar of forthcoming economic and corporate releases that appear in the financial press. Do not enter positions just in advance of them, unless you have a particularly strong view about their likely impact.
- Trade with the trend. Trade as close as you can to support or resistance breakout.
- Buy on dips near support. Sell on rallies near resistance.
- Always make use of automated stop loss orders, mental stops don’t work – Even if you still decide to go through the mental close-by stop route make sure that at least you use a disaster hard stop. Yes, I know there’s nothing worse than seeing a trade turn turtle on you after you have bailed but better be safe than sorry!
- Don’t open trades on a hunch or instinct alone – This is one of the most surefire ways of losing money at spread betting, as it effectively turns the trading platform into a roulette wheel. Even before you open your spreadbet you should know why you are entering the trade, where you want to take profits and even more pertinent where you are prepared to take a hit (stop loss).
- Avoid trading the news – Trying to trade the news can be dangerous and unpredictable. Good news may not immediately result in a price increase while bad news may already be factored in the price. Trade price action, not the news.
- Stick with what you know – Focusing on what you know has always been a good way to enhance investment returns, whatever the asset class. When you understand an industry well, you will have an information advantage over other less knowledgeable investors. Because this level of knowledge is, by definition, time consuming to obtain (and maintain), that staying focused generally produces the best results.
- Develop a trading plan. Trade the plan with discipline – Don’t wait for confirmation other than your system. And don’t mess with your trading plan unless you have concluded after giving a fair trial that it isn’t working. Only then should you go back to the drawing board and start again.
- Testing and refining your financial spread betting strategy can be a lengthy process – You might even feel like you are going around in circles at times, but a good trading plan will help you trade with a calm, levelheaded mind.
- KISS. Keep your trading plan simple – Know the markets you intend to trade, how long you want to be in a position for and how much you are willing to risk.
- Develop a money management system – Aim to keep the risk per trade to a minimum, ideally you shouldn’t risk more than 2% of your trading capital on any one trade.
- Don’t think you just have to day trade – look longer term, say, three to six months ahead and live with the extra spread that brings, the extra is tiny in reality.
- Don’t chase price; buying when price is extended increases your risk astronomically – If you miss it or are late, let it go. There’s always another chance.
- Limit your total portfolio risk – Your overall portfolio risk should be kept within 20% i.e. if all your positions were stopped out you would retain 80% of your original trading capital. Limit exposure to any single stock to a maximum of 10% of your stock market investment cash.
- Expect losses – Even great traders incur losses and it is the first step to being able to control your emotions. You have to imagine that each new trade you open is going against you, hitting your stop loss and you losing that money. Sounds harsh I know but if you are comfortable with that loss, then you’re already half way to keeping your emotions under control.
- Don’t average down on losing trades – if a spread bet is moving against you get out and cut your losses. As human beings we hate to suffer losses, but at the same time we’re happy to run losses in the desperate hope that the market will eventually turn in our favour. If an investor is lucky enough for this to happen, often they will close for a meagre profit.
- Set appropriate stop loss levels – You might say that setting a stop is an art – you need to make sure that your stop is set so that your trade can handle smaller jumps and drops in price (it’s far too easy to be stopped-out by an up or down spike which was actually totally irrelevant in the scheme of that day or hour) while protecting you from losing your shirt if the market doesn’t go your way. A stop that’s too narrow may lead you to re-enter the market, causing you to get stopped out again. That can cause more damage to your account balance than if you entered a stop that was too wide.
- Don’t move stops once set – It is very easy to be tempted to fiddle with and tweak stops/limits and then whoosh bastard spike takes me out. This is really about mental temptation and discipline really. I can imagine people forever increasing their stops thinking that it’ll recover, and it never recovers…This follows from Pareto’s Principle – The 80-20 Rule. On average, 80% of clients lose money trading the financial markets using leverage – this is an alarming number. But what’s even more surprising is that spreadbettors have more winning trades than losing trades – How can this be? The answer to this is down to the fact that the losses incurred on the losing trades are much larger than the profits made on the winning trades and this is because on the whole traders will run their losses.
- Keep your reward-to-risk ratio at a minimum of 2:1, and preferably 3:1 or higher – This means that for every $1 used to trade you stand to profit $2. However, this doesn’t mean that these ratios are set on stone. For instance, what would you do if a share goes up a bit, but doesn’t go to your 3 1 ratio? My first approach would be to tighten my stop if I reach that target and let it run beyond, as long as I lock a decent proportion of profits in then I’m happy. If the trend slows or shows real sign of reversal then I will reconsider the trade.
- Understand the volatility of the markets you trade – Again this is about knowing the market you are trading inside-out. You should adjust your position sizing accordingly. That is, you may take smaller positions in shares with greater volatility.
- It is good practice to move stop losses as the market moves in your favour as this serves to lock in profits – You can also use trailing stop losses to lock in gains.
- Do take at least some of the profits as the market moves in your favour – Close a part of your position and then move the stop loss level accordingly to lock in further profits.
- Ensure you have adequate capital and avoid taking big risks. De-leverage – The more margin you use, the more your risk. Start out slow with as few contracts as possible. Build your account before you increase leverage. This will allow you to survive and trade profitably over the long term.
- Have a thorough understanding of the markets you are trading – Do your homework. The decision to place a trade should be based on the research you have done. This means more than simply replying to yourself ‘the market is way too high – i should sell it’ or ‘this share is trading at a one-year low, I should buy it’. You have to study the fundamentals of the market you are trading or the technicals via a chart. The more research you do, the more you’ll be able to learn from any mistakes when analysing trades afterwards.
- Try to keep maximum drawdowns less than 25% – Once drawdowns exceed this level it becomes very difficult to recover.
- Don’t force a setup or trade – If you have to make it look good, it probably isn’t. Wait for the perfect setup. You may only get two or three a day, but wait for them.
- Almost every spread bet dealer offers practice accounts – take advantage of them to test your trading strategies and learn different platforms.
- Sometimes, the factor that determines how successful your trade will be isn’t the amount of research you did, but your mindset at the time. Psychology is so important that even the best information can be distorted by a poor mindset – As you trade, try to stay objective and calm. Even if you have a losing trade, resist the urge to enter another trade immediately just to win your losses back.
- It is okay to have a break from trading if you encounter repeated losses – This is a good time to re-evaluate the markets and your trading strategy. Trading is an inherently psychologically demanding, not to say disturbing activity. We all know what it feels like to lose; I think it brings out the worst in people, and that’s another reason to steer away from discussion boards. The only advice I can give in such situations is have a break and re-evaluate your strategy. A demo account will help you tweak your system without damaging your bank account.
- Don’t read financial spread betting tips – Don’t believe everything you hear and only believe half of what you see. Be careful of what you read and always suspect what you hear because there is lots of inaccurate and plain wrong information circulating around. Check the source of the input…What is the track record of your source? Is the source reliable and credible? Are there any hidden and/or competing agendas that are coloring the input being received? Is the input being provided for the benefit of the source or the benefit of the company? Professionals usually advise against trading stocks from ‘tips’ – often the tipster is a journalist who has never traded, or if he is a professional (example your stockbroker report, or a merchant bank upgrade), he may be selling you the shares (or whatever) he has been accumulating at lower prices for a while. As for speculating – on oil, shorting indices, currency, spread betting, good old gold, do you have a clue what you are doing, rather than listening to hypothetical experts offering advice with someone else’s money. Likewise, if you don’t like the management, get out even if the talk is sweet.
- My advice to you would be to not waste too much time on discussion boards, take everything with a pinch of salt. As I’ve said in an earlier point disgruntled traders are not a nice bunch of people. And remember, most posts on bulletin boards and the like tend to come from vested interests – stick to your guns, and if you’ve prepared properly, you won’t come unstuck. Just keep in mind that everyone is here to make money and there are always ulterior motives when it comes to that. You just have to look at some of the ridiculously egocentric posters on some forums who basically use the boards to itemise how incredibly successful they are. I’d speculate that if they had anything real going on in their lives they might be out doing it rather than sitting on a forum all day. Trading is a selfish and purely capitalistic profession who’s only intention is to make money. It adds nothing positive to society, manipulates markets, pushes the cost of commodities up, increases living costs etc so I wouldn’t get too upset by anything you read or is said on the subject. We’re all very bad people! 🙂
- Admit and learn from your mistakes. Do you have the plums to accept it’s your fault if you call it wrong? Ok, go ahead, if you don’t – go safe and take a bond…etc
“Remember that if a taxi driver gives you stock market advice it is time to get out because you know that you are in the middle of a bubble.”