Why should you even have a strategy? It’s so that you can feel confident that you have an edge over all those others who do not, and who will inevitably lose money and give up at some stage. A strategy gives you the assurance that you can make money if you can just stick to it. It does that by showing you how it would have worked in the past. It gives you rules that you have seen work.
Having said that, the other side to have in mind about using a strategy is that it just may not work. Even when you have tested it, possibly you made a mistake in the testing, or the market has decided to go its own sweet way since your test, or whatever. Above all, you shouldn’t become wedded to your strategy, and should always be prepared to get rid of it before it gets rid of you – by wiping out your funds. Don’t be scared to re-evaluate it, or to throw it out completely if you need to. Maybe it only works in a trending market, and the market you are betting in has just started consolidating.
When you come to test your strategy you will see that there are ups and downs. Given the truism that no system will produce winners all the time, there will be spells where you can have several losers in a row – that’s the reason for sensible money management. The strategy can still be sound, but just going through a bad streak, and your testing will prepare you for how far you may anticipate that your account can be depleted in at such a time. So you must balance your desire to try another strategy against whether it really is a losing method, or just having a few bad bets.
Try not to over complicate matters when it comes to a strategy. There are only a couple of things that make it up, all the rest is just dressing. Leaving aside money management which we’ve already covered, all you need is to get an entry signal, and then have two exit signals, one for if the bet is successful, and one for when the market goes its own way, giving you a loss. Your strategy would normally have some regard for the time-scale that you want to hold the bet for, so you can quit if it’s not going anywhere, and that would be all you need to run your spread betting.
Perhaps as you read through the various ideas, one stood out to you. You need to select a strategy that you can understand and believe in, and work that strategy to make a profit, before fiddling around with lots of different ways which may only confuse you. You will build up your expertise and confidence better by concentrating on one method, at least to start.
There’s no rush to find the way that works best for you. The important thing is to regularly work at it. Some spread betters can take years to find a system that is consistent with their risk profile and profit needs, but along the way you will be continually improving, and your results will get better. I have already told you about keeping a trading log, and we’ll talk about that more in the next chapter, but that will allow you to go back and see your improvement over time.
If your previous experience of the markets has been the old “buy-and-hold” model, then you may find it difficult to go all the way to a day trading type of trading plan, In fact, you may be much more happy looking for bets that may last up to a month. On the other hand, you might be the type that thrives on action, and can’t stand to wait, and if your lifestyle permits it you may want to run an active account. The only word of warning if you are this way is that you must be careful not to “manufacture” opportunities that are not in strict compliance with your trading plan just because you want to be doing something.
Some spread betters find that they are only happy if they trading in the same direction as the general market, as this gives a little more piece of mind; the general advice is that most of your trades should be in the prevailing market direction, but you can change that if you prefer. Some spread betters just hate to give up the slight loss that is inevitable when the bet exits on a trailing stop, and for them it may suit better to exit purely when the anticipated target price is reached, and then disregard any further movement.
Finally you may want to concentrate on a particular market or even sector if you are most familiar with that; or you may be content to spread your search wide across a range of financial instruments. What you must understand is simply that there is no one “best strategy” to spread betting, and you must fit your character and preferences if you are considering that spread betting will become more than just a passing phase. Your personal beliefs about the market will also influence what strategies appeal to you.