The primary problem however with stops is the knowing just where to place them. But the purpose of this piece is not to suggest at what percentage level a stop should be placed. No, the idea behind this is to illustrate one prime trading strategy where a stop loss can actually be detrimental to your account.

Diversification is a familiar term to most investors. But one has to be careful. There’s nothing wrong with investing in a FTSE tracker or spread betting the UK 100 index, but don’t go thinking you’re diversifying. If the FTSE falls (on average) then you will lose money on your single bet, and if it rises (on average) you will make money on your single bet, and it’s as simple as that.

Going into a position all gung-ho with a double initial position size may well generate more profit compared with pyramiding into the position gradually, but it won’t give you double the profit for the double initial risk you are taking!

Did you read the shocking news about the trouble at WorldSpreads, and did you then visit their web site to be greeted with the following message from the administrators?

In this article I’d like to encourage you to stress test your spread bet portfolio, to discover how you would cope in the event of a market meltdown.

For some time I’ve not really been a big fan of guaranteed stop orders due to the costs involved and the fact that good diversification across a number of positions should provide adequate protection against individual price shocks.

Everyone is trying to sell you something these days, and that something is usually insurance. Have you ever tried walking out of a mobile phone shop with your new phone and no insurance policy?

There is an old saying that you should “only invest (or speculate) with money you can afford to lose”. But this is not good for high earners, because….if you think you can afford to lose a lot of money, you probably will. I know this from past experience, or rather from past inexperience.