Posts from — August 2007
Spread Betting Planning – Have a Plan!
16. Be The-Man-(or Woman)-With-The-Plan.
There are many strategies you can follow to become successful at trading but all plans need a well thought out and consistent plan. Few (if any) plans are perfect first time around. You’ll need to improve and update your plan along the way.
I always say Trading – Planning = Gambling. Well I don’t round the streets of the City saying that to strangers but you get my drift.
17. Changing your plans. You should only allow small changes to any trading plan. Large changes must have a very good reason
18. Have a long term plan eg a 1 or 2 year plan and say what sort of profit level you’re looking for, eg 20% return after Y1. This will help you analyse how you’re getting on. If your target is realistic it can help you reduce your greed/risks on individual trades.
Likewise, if your target is too low, or if you’re only looking for a low risk low return option then compare your targets with investing in safer investment options like spread betting on Bonds. They may be what you’re looking for. They will also reduce your risk, stress and time spent on investing.
If you’ve been following this series of Spread Trading Tips then you may have noted that a lot of the tips are fairly straight forward. Some are a little dull. Is this spread trading blog lacking juice? For now? Possibly. That’s because a lot of trading losses occur because investors are getting the basics wrong. Here’s a good example of why you should go through the motions to help increase your trading profits.
Financial Spread Betting Tips – an average trading anecdote you can ignore:
Should you practice what you preach? Are my thoughts (and ramblings) of any use?
Well I decided to apply some of the methods from this blog to my sports betting.
I wouldn’t actually improve my research but I would note every bet, reason for placing the bet, sport, stake size, profit / loss etc
Possibly it was luck than judgment but after a year my sports betting accounts were in good condition. I had some good wins, some poor bets, the usual, but I rarely deposited funds, I was taking money out and my stake sizes were growing so I figured I was OK.
It’s possible that by simply going through the motions of noting everything down that helped me think about (and avoid) the less thought through bets.
After 12 months my report card read something like: UK football bets profit +- 2%, European football -20%, rugby +30%, tennis -10%, racing -10%, novelty bets +5%, golf -100%.
It doesn’t take an analyst at Goldman’s to see what a poor golf punter I was. 26 golf bets placed, 26 bets lost. Poor hunches and relying on “mates tips”. Likewise, I thought my football trading was OK. And my UK football was (for a hobby). Unfortunately I don’t know as much about the European markets as I thought.
The lesson? It’s a pain to note every bet but it helps:
- you think about the bet you’re placing – it might stop you from some poor bets
- highlight trends such as strengths and weaknesses in “similar” markets. eg showing that UK football was OK but European football wasn’t
- you see some pretty simple answers
“increase rugby stakes and…no more European football and certainly no more golf”.
So here’s the next set of Spread Betting Tips. More research, more prep and more bad jokes.
Spread Trading Research and Preparation
12. Make sure you use realistic scenarios when you paper trade. There’s no point in trading 20-30 markets at a time. It’s unlikely that you’ll have time to research and trade 20-30 positions in real life. Aim for 0-10 open positions.
13. If you’re experiencing recurring losses then look at where you’re going wrong. Maintain paper trading until your research and strategy is sound. It’s boring but better to lose some time on research and paper trading than losing time on research and losing money on recurring losses / large random losses you don’t understand
14. So when you were younger did you want to be the Karate Kid or Luke Skywalker? Or both? Or neither? It doesn’t matter which option you preferred but these themes share the lesson of learning and that expertise takes time.
Let’s assume that a hazy blue Sir Alec Guinness isn’t standing behind you. Let’s also assume that Mr. Miyagi doesn’t live across the road. A lot of the training is down to you.
It’s healthy to have mentors, trading colleagues, chat room ‘buddies?’ but ultimately your trading is down to you. When it goes wrong it’s unlikely the ladies and gents in Financial Forum are going to have a whip round for you.
If you’re new to spread trading ensure you complete lots of research, testing, research, testing and more research and testing, I think you get the idea.
This will help you stop trading on hunches. It will reduce your losses and hopefully increase your profits. Likewise, even though you can’t be bothered, keep noting everything in your Trading Spreadsheet. Your spreadsheet will help you analyse what you’re doing well and what you’re doing badly.
15. Noting Winning and Losing Trades. If a trade goes against you, note it down and why. If a trade goes your way, note it down and why. You should do this even if the market went up / down because of the reason you originally thought it would.
The Brent Crude Oil price had been dropping since it the price reached a high of $78.12 dollars per barrel on 1 August. Then since 8 August the price has been fairly steady. Today it hit a high of $71.90 and a low of $69.03 before closing at $69.73.
Falling financial markets will often hit the Crude Oil price and the forecast of low consumer spending will also hit demand. However the price may have levelled out again as Mother Nature rears her ugly head. Two tropical storms, one heading to Gulf of Mexico and one already there have suggested there could be supply problems. The Gulf produces around a 30% of US oil and hosts the majority of the US refinery capacity.
With one of the storms threatening to become a hurricane it may be worth having a look at the Brent Crude Oil or the US Crude Oil Markets.
At the time of publication the Brent Crude Oil (Oct) price is around $72.81 – $72.86.
As with many financial markets, spreadbettors can speculate on the future value of commodities. eg spread betting commodities like Brent Crude Oil to increase to more than $72.86 by 13-Sep-07.
For the Brent Crude Oil market, you trade in $X per point, where a point is 0.01 of Brent Crude Oil movement. eg if your stake was $20 per point and the Brent Crude Oil moves 0.04 in price then that would be an $80 difference to your profits.
So looking at an example, let’s say you see the live price on FinancialSpreads.com and it shows a spread of $72.81 – $72.86 and you think that the Brent Crude Oil (Oct) value will go up to more than $72.86.
Therefore you buy at $72.86 for a stake of $10 per point.
And so let’s say that by the end date of 13-Sep-07 your Crude Oil spread bet settles at $72.98.
Then your profit/loss is calculated by taking the difference between the level the trade closed at, ie $72.98 and the value you bought the market at, ie $72.86 and then multiplying that by the stake per point of movement.
P&L = (($72.98 – $72.86) / 0.01) x $10 per point stake.
= (0.12 / 0.01) x $10 per point stake.
= $120 profit.
Nevertheless if the market didn’t move as expected and had the Brent Crude Oil (Oct) price closed at $72.80 then you would have lost on your investment.
Loss = (($72.80 – $72.86) / 0.01) x $10 per point stake.
= (-0.06 / 0.01) x $10 per point stake.
= -$60 loss.
Looking for more spread betting examples?
Look no further…How to spread bet on Commodities
Good luck! DB
The popular Forex market of EUR/USD has been decreasing and is at its lowest value for a month. Is it worth backing the market to return?
At the moment the EUR / USD (Sept) market has a quote of 1.3631 – 1.3639.
As with many markets, you can trade on the value of Foreign Exchange (aka Forex or FX) eg spread trading on the EUR / USD(Sept) value going up in price to more than 1.3639 by 14-Sep-07 (when this Sept market closes).
With EUR/USD Forex, you trade in £X per point, where a point is 0.0001 of EUR/USD movement. eg if your stake was £10 per point and the EUR/USD moves 0.0004 then that would be an £40 difference to your profit and loss.
So if you see a quote of 1.3631 – 1.3639 and you have done your market research and think that the EUR / USD market will go up to more than 1.3639 you could buy the market for lets say, a stake of £5 per point.
And so let’s say that by the closing date ie, 14-Sep-07 the EUR / USD price settles at 1.3654. If so, you’ve made a profit on your FX trade.
Your profits are calculated by taking the difference between the level the trade closed at, ie 1.3654 and the price you bought at, ie 1.3639 and then multiply that by the stake per point of movement.
Profit = ((1.3654 – 1.3639) / 0.0001) x £5 per point stake.
= (0.0015 / 0.0001) x £5 per point stake.
= £75 profit.
Of course if the trade didn’t work as expected and had the EUR / USD the market closed at 1.3620, then you would have made a loss rather than a profit.
Loss = ((1.3620 – 1.3639) / 0.0001) x £5 per point stake.
= (-0.0019 / 0.0001) x £5 per point stake.
= -£95 loss.