Beware Itchy Fingers

Guest contribution by Alex Docharty who gives his insight into the psychological barriers involved with spread betting -:

There are two types of trade:

1) The sensible, carefully planned one where you’ve entered at a pre-determined level.

2) The impulsive one where you’ve entered because you can’t stand being out of the market.

Needless to say – trade number one can make you rich, while trade number two can make you poor. One thing’s for sure, no-one gets rich if they allow the number two trades to dominate their trading behaviour.

The problems with the impulsive trades are obvious, but often the inner self ignores them. The urge to trade is so strong that it is the urge itself that determines your entry point rather than considerations of support and resistance, trend direction etc… Needless to say, it’s highly unlikely that the point at which you’re overcome by the urge to trade coincides with the best time to enter the market.

I call this the ‘itchy finger syndrome’ and have fallen foul of it many times in the past. It’s quite often this that brings about the worst losses. You might enter with a small trade just because you want to satisfy the trading urge. When that loses, you trade some more, and what had started as a small trade to stave off boredom or whatever, becomes a full-scale disaster.

It’s absolutely essential for your trading future that you learn to get control of your itchy fingers. This means recognising when you’re about to fall foul of them, and learn to distract yourself. In fact, the very reason I’m writing this article is because I felt the dangerous urge coming on to trade for the sake of it. I know from bitter experience that this is not a habit that you want to get into. It’s trading for all the wrong reasons. You’ll often hear people say that self-discipline is important if you’re to be a successful trader. There are various points where you need to exercise it (e.g. when to accept losses and take profit, how to control your stake size), but as far as I’m concerned, the number one area where it’s most important is when it comes to the correct time to enter trades. There are right times and there are wrong times, and when your fingers are itching falls massively in the ‘wrong time’ camp. Be warned.

Note by one of my viewers: ‘I hate the fact of not being able to take a small position in a stock with a normal broker – and then if I buy more I have another broker fee to pay! Spread betting is perfect for entering in small positions repeatedly. TROUBLE IS – as revealed in my ‘personal performance analysis’ which I did last night – I got into day trading the FTSE as the spread betting account is quite (scary in one way) BUT VERY ADDICTIVE in another – so PLEASE, PLEASE, PLEASE, don’t fall into the same trap as me – I got bored waiting for my ‘shares’ to do their thing (which apparently they were!) and tried day trading FTSE – (only £1 per point positions at a time) – and I have to be honest, I just can’t do it!’

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