Financial Spread Betting Success

Q. I wonder what percentage of spread betters are successful long term?

A: Percentage of spreadbetters? Percentage of forex traders? Percentage of day traders? Percentage of retail traders? Seen figures quoted of between 80% and 95% failure rate but the terminology keeps changing. Isn't a successful marriage just one that hasn't ended in divorce, yet?

The reason most spread betters blow up (assuming that to be true, no idea if it is or not) is over simple as that.

Q. What attributes are necessary for success in financial spread betting? Also, are there are any traits that could hinder success?


A: Spreadbetting is no different from buying and selling shares. If you buy £10pp of something then you are buying the same as £1,000 worth of the shares. You only need to put down £100-£300, which is all very well when it's going well but you can lose the whole £1,000 if the company goes bust. You should be able to work it out from there. The key is always money management, how much you risk of your pot on each trade and the impact on your pot of that trade going wrong. The trade size is is important and you must make sure that you include the spread in your % downside.

Spread betting is a great trading tool if used properly but if you're a gambler by nature then spreadbetting could be the undoing of you.

If I could offer one single piece of advice it would be to get the timescale correct for the type of trade. This is very important for the following reasons:

If you take a 6 month view then it could be some time until you get into profit and that is the hardest thing to control because (and this is only my view point) the market will try and scare you out of trade by trading against you, this makes one panic and exit the trade early.

Have a target stop in place and stick to it - discipline is crucial to preserve your capital - staying locked in a position once your stop loss has been breached is often one of the most common mistakes, even with more experienced traders.

Don't wade in immediately after you win or lose, bide your time, learn the dynamics of the company you are trading like the palm of your hands and get to grips with the market and the sometimes cruel shakes.

I would say the top 3 attributes that all successful traders have are persistence, stubbornness and tenacity.

Q. What are some of the behaviors of successful traders?

A: Vicky Karambatsos-Kitson, a trading coach expressed her say on this. She said that successful traders are willing to trust trading strategies that have been established in the financial markets for years. And they roll out one trade after another and another (almost robotic) trusting their trading system and the statistical performance of what they are applying and then letting the results speak for themselves. Great traders are disciplined and use excellent management - risking only one per cent on every trade, after trade, after trade... And lastly but not least good traders will not permit behavior that distracts or disrupts a proper trading atmosphere.

Everyone can make money in a roaring bull market when most stocks are moving up. However, what differentiates winners from the less successful traders is how they react to changing market conditions. In particular, when things change direction the better traders are more likely to quickly enter short positions.

Q. How do I encourage good trading habits?

A: Many bad behaviors are the consequence of emotional reactions. However, there are some which are simply the result of bad habits. Your goal should be to make trading as automatic as possible and, so, the ultimate objective should be to create winning habits. Socrates once said, 'We are what we repeatedly do. Excellence, then, is a habit.'

Here are a few questions to ask to help you spot areas which need improvement -:
  1. Is there a specific time of day where you tend to experience most of your losing trades? Some traders perform better in the morning, whilst others do best in the afternoon.
  2. What type of trader are you? A number of traders are able to trade successfully sticking to shorter timeframes disregarding fundamentals. For others, trying to participate in short-term scalping can often lead to overtrading and frequent spikes.
  3. Do you have a trade plan set in place before the day begins and how closely are you following it? Having and following a trading plan helps to avoid spontaneous trades and forces you to take one day at a time. Record keeping and logging of trades also helps enforce discipline.
  4. Are personal relationships or illness interfering with your judgement or becoming a distraction?
  5. Are you experiencing sizable one-day losses from carelessness or dropping of the guard? Are you more emotional or reactive during such times?
  6. Is burnout leading to careless habits, lack of focus or reactive overtrading?

Also, keep in mind that market conditions change quickly and the more unbiased you are the easier it will be to adapt to a changing environment; developing a bias or falling in love with a stock not warranted by the technicals can be deadly. Most trading professionals know when they are in a bad trade and know when they are making a mistake; this all comes down from experience - the more you trade the more experience you will gain and start to learn to recognize your own personal signs of a bad trade (regardless of it having not hit your own stop levels). Having a mentor or buddy trader with whom to share daily account statements also helps as it makes you accountable to a third party on your trading performance and thereby makes you less prone to letting one big losing trade to get out of control.

Finally remember that becoming a profitable trader is an ongoing journey, not just the final destination. The perfect trader does not exist. So just focus on becoming a better trader every day and enjoy any progress you make. Concentrate on gaining experience and improve your trading skills as opposed to focusing on just gains or losses in your trading.

Ultimately trading is a business activity. It is not glamorous or sexy. It is not exciting. It is methodical. It is a routine. It is boring. Fifty per cent of the game is handling risk, 40 per cent is discipline, nine per cent is vigilance and the rest is picking winners.

Q. Are there any beliefs that good traders have?

A: Vicky Karambatsos-Kitson, a trading coach responds. 'Good traders believe in themselves and in their trading system - and if this belief is not there already it will completely develop.'

'One of the most common things that I come across, and one of the first things I ask students that I am about to tutor is to tell me about themselves, but my first question to them is - and I say it really obtusely - because I'd like to flush them out - I ask them how much money they would like to make.

And I get all sorts of responses out of that. Quite a few get uneasy about discussing money. Some people are like 'Wow, I want to make THIS' and they're really open about it. Some people are 'Well, I'd like to say, but I might look a little bit greedy if I say what I'd like to',

A common response is to really underestimate, and really bring down the number heavily - and all types of things are going on there, like a fear or failure, a fear of disappointment - that's a really big one that comes up a lot. If I say twenty thousand pounds a month as a target, and I don't make it, that will be really disappointing, and will impact my belief systems going forward.

So all kinds of things come up - but when I ask that question, that's where I get a full scope of why people come into trading. The different attitudes.'

Ultimately, the spread traders who make it in this business are the ones with the most perseverance. As time goes by, trading experience will become a trader's greatest asset. Each day, a trader acquires more experience as to what the best trades feel like and which of his/her own behavioral patterns lead to trouble. Once he learns the patterns that lead to mistakes, it is easier to make those mistakes less frequently. The fewer the unforced errors, the steadier the equity curve in the long run.

Successful spread bettors have the mindset that winning or losing depends on them. Losing spread bettors tend to look to blame everyone except themselves for their losses. In quite a few instances a loser will take a trade based on another person's advice, then blame the advisor if it doesn't work out...

Q. What is harder: 1) letting profits run or 2) let a losing trade run?

A: Letting profits to run is MUCH harder than allowing losing trades to run.

Closing winning trades early is however a main reason why so many investors fail at financial spread betting. We are hardwired to believe that it is better to make a small profit than none at all but you need to stick to your risk-reward expectations and trading system if you are to make long term profits. Thing is stocks don't go up in a straight line and typically a share is fluctuating up and down; one moment you're sitting on good profits, the next your profits are being eaten and you beat yourself up for not closing your trade earlier. However, this is normal, you can't expect to get in at the bottom or sell at the exact top and remember you only make gains when you close a trade. Even stocks that are clearly in strong up trends will pull back at some point to allow profit takers to realise their profits. It's this movement that causes the market to retrace and most novice investors immediately eat a loss.

It is much more simple to let losses ride; most people find it hard to admit that their judgement was wrong and will often widen their stop loss further so they don't get closed out or even worse add to a losing position. Both can be fatal mistakes; your aim is to keep your losses small. And really the only sensible thing to do if a share is moving against you is to close out half your position which allows you to keep a part of the value of the position in the trade.

 ...Continues here - Money Management. Is it that important?

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