Posts from — October 2007
It’s been a while since we added any spread betting tips in this blog so here is the next set:
Tip 48. So this running your profits malarkey…how do you actually do that? That tough one of being confident with being too greedy.
You might start thinking ‘this trade is going well, perhaps I’m being greedy, perhaps I should be disciplined and take the profit. After all, I don’t know where or when the market will move’.
However you need to remember that you’ll probably lose more trades than you’ll win. Perhaps only 40% of your spread trades will be successful. That’s not too bad if the good trades cover the losses of your bad trades.
The nature of the market suggests that to be profitable you’ll have a high number of small losing spread bets and a low number of large winning spread bets. Don’t forget you can always use a Stop Limit in order to protect your profits. Just remember that by closing the bet you are basically placing a new bet in the opposite direction that the trend is going in.
So ask yourself the question, “do want to place a bet in the opposite direction?” And work that trade out separately.
Also don’t forget that you are paying the width of the spread and knocking a couple of points off your hard fought profit.
Look at your plan and question whether you really want to place a new bet against the market. If it looks like a good thing then do so.
Another protective option though is to part close the bet. eg close half of the bet and leave the other part running. Make sure you note down in your Trading Spreadsheet why you’re doing that so you can analyse the affects later
49. Sell, sell, sell. Most traders like to Buy (go long) for the large majority of their trades. However many successful traders also Sell (go short). It’s a natural human emotion to think positively and think about the markets going up. Look out for markets that appear weak, markets that look overpriced and that could go down. If you’re only buying then you’re closing yourself off to 50% of the opportunities.
50. You have an Open Position. Fine. You decide to do nothing with it? Why? Doing nothing with an option position is the same as trading. Make sure you know why are you staying with the bet.
51. Try to Avoid Churn. With wide spreads, spread betting can be expensive if you’re constantly in and out of the markets. Of course there are a number of companies like Financial Spreads or Capital Spreads that offer tight spreads to help negate this effect.
If you find you’re constantly in and out of positions, you may need to do more research to stop this. Alternatively try reducing your stake size and staying in your positions a little longer. You won’t learn much from constantly opening and closing bets
52. In important but short tip. Just because a price has gone down a lot that doesn’t mean it the market won’t fall further. Similarly if a market has gone up a lot. Don’t expect it to stop just because it’s gone up a lot.
We are now adding a couple of new weekly articles that may interest you:
Spread Trading – a Daily update of the markets
Spread Betting News Week – a weekly look at the Financial Press
Economic Indicators and Company Results – the Indicators and Results for the week ahead
Online Trading News – a weekly review of the markets
As always, just check the homepage for the latest articles.
(the weekly articles are added on Mondays)
We’ve got a new section on the CleanFinancial site you might be interested in. Simon Denham of Capital Spreads is now writing regular articles for us.
I have to admit that I don’t agree with everything he says but he does have some great insight into the markets and does pose some interesting questions.
Certainly worth a read.
Another interesting offer for you.
I thought you might like a quick look at the latest paddypowertrader offer (below).
£70 paddypowertrader New Client Offer
Open an account, deposit EUR250 (£170) and place 4 non-equity bets by 14 Oct to claim a EUR100 (£75) free credit to your account. This offer cannot be combined with any other offer on PaddyPowerTrader Accounts are subject to status. See site for full terms & conditions. Accounts are subject to status.
Click here to apply for an account.
Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. Stop-losses are automatically allocated with each bet you make. All stops are not guaranteed. You can lose more than your initial deposit and stake. Before you open an account, please ensure you familiarise yourself with the risks involved and if necessary seek independent advice. Full Paddy Power Trader Terms and Conditions.
PaddyPowerTrader is a trading name of London Capital Group Ltd which is authorised & regulated by the Financial Services Authority.
Another selection of spread betting tips for you.
Tip 43. One way of ensuring you’re getting better value is, as always, to shop around. If you open an account with 2 or more spread betting companies (see Best Spread Betting Companies) then you should be able to take advantage of the variations in their spread sizes and quotes. Having a two or three accounts simply makes it quicker and easier to shop around for the best price.
44. The Great Spread Bet. However tempting it is, it can be dangerous to risk large sums on a single “great spread bet”. There’s nothing with big stakes (provided you know what you’re doing, have the necessary funds, are confident in your research etc) but if you have one of two big trades and they go wrong then that could easily undo all of your good work.
When you get tempted to place a disproportionately large spread bet, then have a quick look in your Trading Spreadsheet. Remind yourself of all your ‘great-trades-that-lost-because-of-unforeseen-market-conditions’ and other ‘unknowns’. That can help sober you up.
45. If you think a share or market looks like it could be a good bet in the (near) future then keep a regular eye on it. Don’t just check it randomly when you’ve got a few spare moments.
46. There is some good free chart software out there (eg Financial Spreads offer some free charts) but even with that kind of help it still easier to spot an existing trend than ‘spot the top and bottom’ of a trend.
Therefore it’s easier, and theoretically less risky, to spread trade WITH the trends. Of course if you do that you will miss the top and bottom of the curves. However doing this can help you reduce your losses.
47. A common expression in spread betting is ‘cut your losses and let your profits run’. The theory is simple but it’s difficult in practice to turn a paper loss into a real loss by closing the losing your bet. For many of us it’s difficult to say I made a mistake! On top of that it’s not much fun writing off all the research you’ve done. The greater your losses the more emotional and attached you become. It may also affect your other trades. If your trade has been running away from you for 2-3 days just ask yourself if you want to lose more?
A stop loss can help you close a bet. When setting a stop loss it sometimes helps to work out the actual financial loss not just the point movement. eg work out that you’re prepared to lose a maximum of £500 per trade and set your stop loss there (not that not all stops are guaranteed).
Thinking in cash will help you understand how much you could potentially win and lose rather than thinking in terms of a 20 point movement in this market or 5% change in that market.