Spread Trading Tips
It is amazing how quickly you can learn in this game, just from trial and error. I think it is always good to get tips from those that are succeeding though and in that respect it is okay to listen to others but do make your own research as well and work at sorting the chaff from the wheat – as you gain experience you should be getting less innocent by the day! Here are some spread trading tips from my goodself ;P
If you are starting out open a real money account and start spread betting with very small stakes. There is definitely no need to trade large amounts. But having some money on the line is definitely much better than trading with a simulator or demo account which lacks the ‘real feel’ of trading. Even though you will lose money it is a lot less and helps stop silly mistakes during times of wild panic when things start to look like they are turning when in fact it’s just normal price movement and your original decision was correct.
Spread betting is a useful tool to avoid capital gains tax if used carefully. You do need to be much more cautious if you are using margin. And its quite important to get the market direction right. For instance being able to identify bottoms would potentially reduce your adverse short term price movements and increase the chances of hitting a rise. I started just before the credit crunch – made quite a lot between June and August 2008 then lost the lot in the next couple of months. Put about the same amount (20k) in again since then, and increased it to about £60k but I’m now taking some out… I think Jesse Livermore said that you should take out half your profits every month. He didn’t always follow his own advice though!
Many spread betters work on too high a leverage and can easily be margined out of positions. I am cautious in that I have money to cover my long term bets down to zero. If I make short term trading “bets” I will take the hit if the price hits my stop loss, but core holding remain. I like to think of myself as part of the 20% of people that make money on spread betting. I don’t run around chasing the latest hot thing. I stick with my choices unless of course the story changes.
A common problem for beginners in this business is to open too many positions with too little capital. Comment from Dan: ‘Yes – bang on, and the same with the margin trading account. Got greedy, and didn’t have the resources behind me to support that ‘greed’. As I’ve said, I made 90% profit on spread betting before I got greedy. Opened lots of positions, and when one or two went down, I had to close out, rather than wait for a recovery’.
The biggest issue I have found is that you can pick the right company in the long run, but if use stop-losses then the short term movements can stop you out. So have a plan to get round that. As the reading says – make a plan and follow the plan…so easy to say!! Think what I need to do is to plan my trade, put in the safety, and DON’T watch it. When you sit and watch all the time, when the trend changes it is too easy to panic and get out of the trade.
You definitely need to have a good stack of cash and not over bet. £100pp for me isnt over betting in relation to how much dosh I have in my spread betting a/c… Even with two or three different postions on indices and stocks, i have plenty of margin left over for opportunistic trades… But for someone with with a £2000 account spread betting at this would £100 per point would definitely be over-betting.
Definitely you should NEVER buy on a whim without thorough research, and avoid over-trading. You also shouldn’t sell a good investment in order to buy something you think will move quicker, as long as your reasons for investing were very sound- the quality research you did in the first place is also part of the investment (time/energy).
Money management, run winners cut losers by using a stop loss of around 10 – 15% on losers, or less. Be ready to cut losses before these become too big.
Spread betting becomes too stressful and when you start chasing losses – that’s when it can be very dangerous, which is what I unfortunately tried to do when starting out… Kept buying the FTSE 100 as it was plunging , £1 a point, £2 a point and it just keep falling and i kept adding from 5250 downwards with a stop loss at 5000 which got hit – that was one hell of a lesson!
Patience is one of the hardest parts of trading. There is something to be said for Warren Buffett’s advice that you should imagine you can only buy 20 shares in your life- so you had better make damned sure each decision is a sound one, even if using the ‘quick’ medium of spread-betting for example.
I guess what I’m saying is that managing risk is essential to mastering spread betting. if you can do that and not make emotional trades then it’s a great way to potentially make tax free money and not have to rely on useless brokers and pay CGT on any good decisions you make. (CGT is crazy in my opinion).
If you really study it and read as much as you can, then yes, you can make money trading the financial markets. Low leverage for many, many months, tight stops leaving room to breathe, we know the rules.