The 8 Do’s and Don’t of Spread Trading

So this post with trading tips is for all the spread trading newbies out there. If you’ve recently been looking into the world of trading then you’ve no doubt come to the same conclusion that we all did…how will I ever actually make sense of, let alone absorb all this information?

Well, below are a few of the main Do’s and Don’ts that all beginners should be aware of:

DO:

Cut your losses and let your profits run
Sounds simple enough doesn’t it. That’s because it is, but you’d be surprised at how many people don’t stick to it.  Snatching at profits after a few bad trades is the downfall of many traders.

Learn the importance of and apply money management
Maintaining your capital is key. Don’t use a large percentage of your overall pot on individual positions.

Understand fully how spread betting works
Make sure you know the basics of how spread betting works. What a ‘spread’ is, how much margin is required for a position…etc

Always use stop losses
This can’t be stressed enough. It’s the basics of ensuring you don’t burn out quickly as a new trader.

Develop and use a trading plan
Understanding what you’re trying to achieve as a trader and then developing a trading plan to achieve it. Again, it almost sounds too obvious but it’s an important one.

Understand your trading platform
Try out a few demo’s/ trial accounts until you find a platform that you feel comfortable an competent using.

Understand the wider influences on the markets you trade
If you don’t understand the wider influences then you’ll run into issues when trying to understand why a position either went for or against you. There could be nothing wrong with an individual company, but the overarching indices might be significantly down and in turn have a knock on effect.

Learn the basics of technical analysis
You don’t need to know the calculations behind the different indicators, moving averages etc, but what you do need to know is their uses, and more importantly how the right ones fit into your trading plan.

DON’T:

Risk money that you can’t afford to lose
Trading definitely carries a lot of risk, which is why you should only ever use money that you’re willing to lose.

Move your stop loss once you’ve placed it
This is a big one, and something a lot of people do and find out the hard way that they shouldn’t. The stop loss placed when you open your position should be based on sound reasoning, whether that’s financial risk, key price points or something else. This reasoning is still exactly the same whether or not the position doesn’t move in the direction you want it to.

Snatch at profits
This usually happens as a consequence of our two good friends ‘fear’ and ‘greed’. After you’ve had a couple of trades not go your way you’re keen to recoup the losses as quickly as possible so you close a trade to lock in some profit. Error! There’s nothing worse than exiting a trade only to watch it go further and further in the direction you wanted. Trailing stop losses will become your new best friend.

Let your emotions control your decision making
Your trades should be based on a tried and tested system, not a hunch. ‘Feelings’ have no place in successful trading.

Overtrade
You don’t need to be in positions just for the sake of it. You enter or exit based on what the market and price tells you, not because you’re bored or want the excitement of trading. And some times it’s actually good to not have any positions whatsoever so you can get a fresh head on your shoulders again.

Follow someone else’s system blindly
No doubt you’ve already been on a few forums where you’ll see people bragging about how well they’re doing, and how they have an infallible system. Sure, you can learn a thing or two from the experienced traders out there, providing you understand what it is they’re doing and you’re not just blindly following it. If something goes right or wrong, you need to know why so you can either replicate it or tweak accordingly.

Spend too much on unnecessary software or courses
Knowledge is extremely important, but don’t be too eager to just buy the most expensive trading software or sign up to the first course you come across. Do your research first and see if it’s actually necessary for what you want to achieve. There’s a lot of free information and products out there that you can use when first starting out.

Over complicate things with too many indicators
This is one I found myself doing early on. You read an article or post about a great indicator, so you try it out, then you read about another, so you throw that one in the mix too, and before you know it you have a ridiculously complex set up that’s more than likely telling you conflicting messages. Know what you want to achieve first in a way that you can write down on a piece of paper in a short summary, and then find what indicators etc support this.

Granted, a lot of these seem like simple common sense, and they are, but you’ll be surprised by how few people stick to them. So do yourself a massive favour and use that common sense.

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