This week Dominic Picarda looks at some things to consider as part of your trading strategy.
Only disciplined traders make money over time. The cornerstone of a disciplined approach to trading is having a proper strategy.
Before you open a single trade, you should have worked out what your strategy is and how you're going to put it into practice. Simply making it up as you go along is the fastest route to blowing your trading capital.
There is no single formula for a winning strategy, but there are some common characteristics.
Know what's worked in the past
One way to develop ideas for a trading strategy is by studying market behaviour in detail, preferably on live charts. Note the candlestick patterns and momentum readings that tended to occur at the beginning and end of big moves.
If you want to get really serious about this, do some back testing, with a good charting-software like MetaStock. Here you can monitor your trading behaviour to see if your strategies really work.
Focus
Although your spread betting account gives you access to loads of different markets, you should concentrate on a limited number of them.
Dabbling in many different assets just because they are there is a classic habit of losing traders.
Instead, decide which markets best suit your trading style and get to know them inside out. For example, you may decide to trade only currencies, and just half a dozen rates within that market.
Be clear about your time frame
As well as understanding what sort of moves you are trying to capture, you should also determine how long your positions are likely to run for. This will help avoid two costly errors.
The first of these is getting out of winning positions too quickly, thereby foregoing some profit.
The other one is remaining in stale positions that are doing nothing, which cost you financing charges and tie up capital that could be used on better trades.
Refine your approach regularly
Because market behaviour changes, your strategy will need to adapt.
For example, a strategy that worked during volatile conditions may produce inferior results when the markets are more stable.
Keep detailed records of your strategy's performance and scrutinize them regularly.
Until next week, happy trading
The Tradefair Spreads Team
The above comments do not constitute investment advice and neither Tradefair Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
Risk Warning:
Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Before you open an account, please ensure that spread betting matches your investment objectives, familiarise yourself with the risks involved and if necessary seek independent advice.
Article provided / approved by Tradefair Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
Tradefair® is part of the Betfair Group.
'Trading and Strategy' edited by DB, updated 25-Nov-09
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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