Vince Stanzione’s Tips

These 5 basic tips for spreadbetters are from Vince Stanzione;

  1. The trend is your friend – don’t bet against the trend.
  2. Buy the rumour, sell the fact – markets usually factor in news before it actually gets out so when the news does come out, the market does not always move as expected.
  3. 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!!
  4. Keep your stake size as small as possible at first, and keep stops wide.
  5. Keep in the game – the market will always be there – will you?.
  6. 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.
  7. 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
Taking Profits Early

Traders often see a small profit and they take it. If you work on the basis that you are right on 50% of trades
executed, then you will never make any money. When putting on a trade I always think, based on worst case scenario – how much money am I prepared to lose on this trade? Starting at £1 a point a £100 loss would allow me a 100 point move against my position before I get stopped out. If it is £100 I’m prepared to lose then I should be looking to make between £200 and £300 profit. That would then mean I need a 200-300 point move in my favour. This way, based on a 50% success rate I would be making money.

For every element of risk, you should be looking to make at least double that on the profit side. It’s all about maintaining discipline when things are going well, as well as when they are going badly. And make no mistake they will go badly from time to time.

In the example above I have drawn a resistance line through 6754 on the FTSE100. On a risk/reward basis going short (sell) the FTSE is the sensible way to trade when the price is near these levels. There are a number of reasons for adopting this strategy.

  1. The market has held below it a number of times.
  2. Because of the resistance level the potential downside is clearly defined – a move above 6750 negates your
    strategy and you can stop the position out.
  3. The potential profit can be calculated by looking at previous reactions off these highs.
  4. If you put a 100 point stop loss on your position then at the very least you should be looking to make 200
    points and more.

Looking at the previous reactions off the 6750 highs this is easily achievable. The red arrow indicates any potential
loss and the blue arrow your potential profit. As you can see that shows an acceptable reward/risk ratio of over 2:1.

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.

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