Tips for Spreadbetters from Fellow Spreadbetters

Vince Stanzione's Tips

These 5 basic tips for spreadbetters are from Vince Stanzione; btw you will need lots of $$$ if you intend to attend one of his seminars:

1. The trend is your friend - don't bet against the trend.
2. Plan, Plan, Plan - So Prepare & FOLLOW a trading plan; this will ensure that the majority of emotion (and trust me there will be loads) is minimised...and remember if you don't have a plan (especially if you're a newbie) then you're not trading - you're gambling!!
3. Keep your stake size as small as possible at first, and keep stops wide.
4. Keep in the game - the market will always be there - will you?.
5. Follow your rules!!! Read books, forums, whatever, for help, knowledge & advice BUT NEVER rely on someone's else opinion to get in or out of a trade. If you're not sure of what to do, don't enter it, and if you're already in, get out - immediately!!! Hope is not a good trading strategy.
6. Never average down. If you are a position where you think you need to, then you haven't placed an appropriate stop loss!!

I'm also always very wary of shares with the following characteristics:

1. Very low-price with big percentage spreads.
2. Widely perceived by tipsters and punters alike as "undervalued by the market" - because they often turn out actually to be overvalued rather than undervalued.
3. Discussed frequently in glowing terms by lots of PIs, with every small SP movement analysed in detail.
4. Which is falling rather than rising (unless I'm short, of course).
5. And where everyone who's stuck in it with a loss is so desperate for it to go up that they long for the next trading statement or results - which, though they may boost the SP, will frequently do so on only a very temporary basis (because the smarter punters recognise an opportunity to sell when they see it).

These are especially when market conditions aren’t exactly rosy.

In my experience, such shares are more likely to deplete one's bank balance - and almost as important, one's mental processes, distracting them from more attractive propositions - which is why I generally steer well clear of them. A buy would be a share that is actually going UP, rather than sideways or down.

IMO, "undervaluation" and "overvaluation" are pretty well meaningless terms. Try phoning a market maker and telling him you want 30p for your MPH shares "because that's what they are really worth", and see what answer you get!

A share is only worth what it's worth at any given time. What surely matters most is the direction in which it's heading...

Here's a nice quote from a guy called Nicholas Darvas, who was a very successful trader in the 1950s and 1960s:

"The only sound reason for my buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering."

It took me a few years to grasp this lesson fully, but believe me, it's - IMTHBO - THE most important lesson that any trader can learn.

Trouble is, it's so damn simple that many people don't even bother to consider it! Unfortunately value is pretty hopeless in a declining market. Great at the bottom but not so great on the way down.

Cliches they may be, but effective ones. Ignore them at your cost. Unfortunately, it is human nature to do the opposite. Novice traders tend to:

1. Defy the trend
2. Take profits early
3. Let losses run

It is common knowledge that professional day traders tend to run their profits and make incremental losses. The rationale is that they abide by the law of averages. To preserve their capital, their overall profits must offset their overall losses. Remember successful trading is 10% technical and 90% psychological. If you smash through the mental barriers then you are more likely to achieve your financial goals.

More basic tips and strategies for fellow spreadbetters

Best advice I can offer to fellow spread betters - keep a diary. Not just of your trades but more importantly, why you did them. Record your feelings, e.g "I bl**dy knew I should have closed that when I was up 10 points". Review the diary regularly. Am I getting any better at doing what I know I should do, especially closing out losing trades when they aren't hurting too much yet? The important thing here is to bench mark yourself against an index and keeping records also helps so you're not kidding yourself you're making money if you're not (as it is very easy to get an addictive booze from trading spreads!).

This is crucial - have a maximum loss target on every trade, no more than 2% of your pot. That's obviously £100 on a pot of £5000. If you reach that maximum loss, close out, no matter what (ideally, by use of stop loss, to take bad willpower out of it). This means you need to hit 50 bad trades without any winners before you are knocked out of the game.

It took me a long time and a fair bit of money to realise that just because a price has fallen significantly that does not mean it cannot fall further or that it is cheap. If you were standing at a fairground and a man was hitting a stake into the ground and the stake was 500 cm long and he had already knocked in 372 cm would you want to bet a £1000 a cm that he could not knock it in any further? A lot of people who thought Marconi could not get any lower lost money.

The opposite is also true. Just because something has gone up does not mean it cannot go further. If the same man was flying a kite and had got it up to 50 m would you want to bet he could not get it any higher? A few spreadbetters who are currently short in oil are finding out right now.

Make use of Guaranteed Stop Losses. Several of my friends trade with IG Index and don't use guaranteed stops because they believe they're too expensive. I got stopped out of PRK at $6.44 last week with a Guaranteed Stop which has just paid for 28 previous Guaranteed Stop's. If a new 100% guaranteed parachute opening device was offered to you prior to making your next sky dive but would cost you an extra 0.3% of your total fee, you would say 'No way I'm paying for that, anyway I'm in control, I know what I'm doing!!' Some people just don't get it...until they hit the ground.......ouch!!

The typical reward-risk calculation is to divide the profit target by the amount that would be lost if the stop-loss level is hit. In the example above, the profit target is 25 points at £10 a point = £250. The stop-loss is 10 points at £10 a point = £100. Therefore, the reward-risk ratio is £250/£100 = 2.5. For most trades, the ratio should be between 2 and 3, with exceptional trades giving ratios of 5. If the average is 3, you can get seven out of 10 trades wrong and still make a small profit. However, the reality is that not all trades reach their target. So, attempting to get five out of 10 right and still be profitable is a much more achievable goal.

Finally, have a profit target for every trade before you go in. This should be at least 3 times the max loss target. If you reach the profit target and feel like holding on, but are afraid of giving it all back, consider moving your stop up within max loss of the present price, i.e treat it as a new trade from there. Or else, close out half and let the other half run.

Don't be swayed by what you read on any discussion boards - make sure you are trading what YOU understand and know why YOU have made the decision that YOU have made.

We all love sharing our experiences but they are based on OUR experiences, period of trading etc. YOU have to establish your own risk levels, stop parameters entry and exit points. Watch and read by all means but NEVER trade on what you read unless you have come to the same conclusion based on your own analysis.

There are no easy ways, nor right/wrong ways - only the ones that work for you. Good luck - but it won't always go your way - and losing is a learning experience - no failure, only feedback !!

If you are trading a share with a wide spread on sets then in the am its always a lot wider and the only real way of getting around this is by setting stops a decent percentage away from your entry and/or reduce your exposure. IMO far better to trade indices/commodities or the biggest stocks in the ftse as the rest just cause needless headaches.

If you mainly use spreadbetting for intraday/hour/minute trading, take extra care with overnight positions. If you have to run a position overnight consider removing the stops and waiting for the opening spread to settle down before re-applying the stops. This is especially critical where stocks are tradable in the states (adrs) where the spread betters are more than likely to take out any sensible stops.

When a trade is well in profit consider moving the stops to protect your profits.

Keep it small and stick with stocks you know. You can always branch out when you can prove to yourself you can make money on those you have a "feel" for. So trading companies like Tesco or BP even at £1 to 5.00 can be much fun and is more realistic then 1p.

Open a few accounts with different companies and you'll probably end up using more than one as they all have advantages and disadvantages.

Sometimes IG stinks, sometimes Capital Spreads stinks - sometimes they all stink - it's the price of doing business; if you can trade, then over time it does not matter as you will make more from them than they do from you. - if you approach your broker/spreadbet company...etc whatever with an adversarial attitude one thing is for sure you will never win. A win/win approach is the only way you survive in this game - you need to make money, but so do they, bear that in mind.

If you think you will get a better deal at a proper fx broker - then go for it - 99% of forex brokers are also market makers making their own price and shading...etc so again you aren't in the real market - the only way to escape this is to go direct to market and if don't have enough money to do that and then you certainly would not be happy. Slippage is a cost of doing business but it's cheaper than paying 40% capital gains tax!

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