Free Spread Betting Tips on Lowering Risk
How to limit your risk / remove emotion – part 2
Tip 56. Although similar, a ‘Controlled Risk Bet’ or ‘Guaranteed Stop Loss’ should not be confused with a ‘Stop Loss’.
A Stop Loss is not Guaranteed.
Let’s say you have a normal Stop Loss on the FTSE 100 which you bought at 6541. If so, your stop loss could be set at 6501. However if there was a sudden bear market and the FTSE tumbled you could be in trouble without a Stop of some sort.
Perhaps another large bank issued a profit warning…perhaps the US Federal Reserve did something unexpected.
Either way, the markets rarely move smoothly from one price to the next, they tend to ‘Gap’ instead. Ie leave Gaps in between the prices offered. eg it could fall from 6541 to 6538 to 6524 to 6503.
In the above, your stop loss won’t have kicked in. Now the next drop or gap could be down to 6480. That’s where your stop loss would be filled. Not at 6501. With a Guaranteed Stop Loss or Controlled Risk Bet you often have a slightly wider spread but your stop loss is guaranteed. eg in the above you would be closed out at 6501 not 6480 even if a price was never offered at 6501.
57. Learn to Cut your Losses. As discussed many times on this site, Stop Losses are a useful insurance tool. However, if you get into a spread trade and it looks like a poor decision then cut your losses. Try not to wait for your Stop Loss to kick in. Get out of the trade and keep your losses as small as possible.
Eg in the above example, why wait for a Stop Loss or Guaranteed Stop to kick in at 6480 or 6501 if you can close your position earlier for a smaller loss?
58. Clearly you shouldn’t trade whilst under the influence of alcohol or any other substance. You’re likely to place poor trades with a larger-than-usual stake size. Not an ideal trading combination
59. Stick to your Trading Spreadsheet and plan. Plan everything and follow your plan. Plan. Getting it yet? Plan. Plan. Plan. Make sure that as part of your plan you understand the risk-reward ratios. Also makes sure you understand the market influences like government reports, related markets, support levels, resistance levels, historical price levels, seasonal influences etc. Many of the key Economic Indicators and Company Results and now listed on this site each week.
60. Patience is a virtue. It’s a virtue you need if you are to trade successfully. If there are no good trades to be done for a week or two then don’t think ‘oh I’ll have a small interest on XYZ’. That’s gambling. The summer is normally a quiet trading period (summer 2007 was an exception). Ensure you wait for the right trade and congratulate yourself on being patient. Don’t forget to congratulate yourself on not losing any money. You’ve still been watching the markets, you’ve still been learning and you’ve not lost any funds. Bravo!