Starting Out: Check your Stakes and Don’t think you know better than the Market

  1. Be careful and try a few small bets first when trading for real money – do look at the graphs, the highs and lows are crucial!!
  2. When starting out it is sensible to keep the stakes low to understand how the market you are trading moves day to day.
  3. Check what your stake is buying you – is it £1 per Pence, or £1 per 0.001 pence – it does kinda make a difference. What tick size does the market trade in? For instance, on the FTSE 100 you bet on the last whole number whereas on gold you bet on the first decimal place. This is critical information as it can make one hell of a difference on your overall exposure.
  4. Don’t be greedy – it’s better to take a few quid profit early than hold out until the very last and lose the lot. As Soros said when asked ‘how did you make your money?’ he said ‘by selling too early’. But on the other hand you really need to run your profits as much as possible; your aim should be that the size of winners outstrip losers by say a factor of 3 (which means that if your stop is 30 points away your limit needs to be 90). This way a good trade will compensate for 3 losing ones and a better hit rate will guarantee an overall gain. Of course no one goes broke booking profit early on a profitable system, but you don’t get rich that way either.
  5. I think there’s a tendency amongst spread betters to think you are ahead of the curve – that you know what’s going to happen – what’s supposed to happen. Don’t think you know better than the market. You don’t. And even the most inside of insider information is probably widely known. Do follow fundamentals and analyst reports but remember to take them with a grain of salt; media reports amd analyst ratings are usually biased to serve the agendas of institutions.
  6. Don’t get addicted to looking at the pretty graphs and colours moving around all day – it is best not to lose your day-time job at this stage.
  7. Don’t get caught up in ‘missing the boat’ i.e. keen to get your position on because you think you are right, you probably aren’t!! Being more selective on what you trade has its advantages – it rules out a lot of casual trades that may otherwise have been overtraded. Patience is one of the key factors to making money. To be successful in this business you must possess an objective disposition and the ability to control your emotions. Remember that it’s better to be bored than broke…
  8. You don’t have to be really short-term, I find it is very much less stressful to take a view on something over days and weeks rather than minutes and hours.
  9. Do stagger your entry. Often you won’t manage to pick up an exact market top or bottom. Instead of entering at one particular price use an approximate entry range so that you build your position by adding small bets each time. This is one of the advantages of spread betting, you do not have to pay extra commissions for multiple deals unlike with share dealing. Not only will this allow you to stay calm but it will help you develop a low-risk staggered entry.
  10. Never average down – i.e. do not increase your position when the market moves against you. It can be a good idea, though, to increase your position once you are already in profit. For example: You open a position for £1 a point on the FTSE at 5000, stop loss at 4900. The market moves to 5100. You are £100 in profit. You could now think about perhaps buying another 50p and moving your stop to 5000. Should the market move against you, you will break even on the £1 per point trade and lose £50 on the 50p per point trade.
  11. Have you got time to spread bet? Place daily bets only if you can constantly watch your screen, otherwise stick to futures. Prior to opening or closing any daily bets it’s advisable to check Level 2 data as this will let you know at a glance whether the price is going to move up or down.
  12. Do try to buy on short term weakness within a trend of long term strength (doing the reverse when selling). It is sensible to try to buy as cheaply as possible but if it all comes to saving a few pence on entry – then you really should be getting into the position in the first place. Keep in mind that certainty doesn’t exist in trading; you are always looking for a preponderance of facts, not proof beyond the shadow of a doubt.
  13. Above all get to know the shares in your portfolio, make mistakes and learn from them. I like to keep a close eye on some of my favourites and try to trade in and out of them. I think that you can kind of get to know a share – that’s my theory anyway – I’m not trying to be emotional about it, just that I think having a few that you are familiar with can help you recognise when there is a buying opportunity or if perhaps something else has made the share fall/rise? In fact, I believe that the best way to trade a stock, by which I mean trade in and out, is to learn how it moves. When I find a new stock I often watch it for a few days… Try to enter trades near to support (doesn’t cost much if you are wrong) and look back at your portfolio, identify trends you would have liked to trade and back test using chosen indicator. If you sell and then delete/forget about it I think you are limiting your scope to make a ‘trade’ where you might at some other time spot one.
  14. If you close the deal by telephone, state your requirements accurately and don’t expect advice. Check your contract note carefully.
  15. In placing your bet, use a stop loss (maybe even a guaranteed stop loss!) and perhaps a limit order. Set your buy price low and the computer will buy for you at the best price. Have a strategy for getting out of your spread trade if it goes wrong – so many don’t, with predictable results.

A dream written down with a date becomes a goal.
A goal broken down becomes a plan.
A plan backed by action makes your dream come true.

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