Don’t Procrastinate & Don’t try to Rationalise the Market -:

Spread betting is like every other form of gambling, there are do’s and don’ts. Here are some pitfalls to avoid…

1. Procrastination happens because of fear of loss and our natural inclination to avoid loss as opposed to seeking gain. This is a powerful emotion that influences the decisions and actions we take. In a sense it feels safer not to commit and make a decision or take action as we already know the result.
2. Don’t procrastinate in executing your trades. The pain of standing aside and missing a good trade that your system told you to take is bigger than the pain of losing on a trade that you entered and which you were properly stopped out in accordance to your trading plan. It is also amazing how a one day delay in selling out of winners that are turning South can cost 50% of gains. This has happened to me countless times. And those drops can be ruthless when they come, undoing weeks of patience. Then you become attached to the price you *could* have sold at and perceive the lesser gain as a loss even though it isn’t. I think I heard someone mention the same syndrome when buying, where you miss a rise and then don’t want to get in because you *could* have got in earlier so you feel you’ve already lost something. Holding on to those sometimes leads to actual losses, which can sort of solidify the perception that there was just that one “right time”. Getting past this thinking seems to be the key to making real progress in this.
3. Taking smaller profits is a no go in spread betting. I’ve seen myself taking just 50 points from the FTSE only to see it move further in my direction where I could have taken over 150 points sometimes. Now, although a profit is always good, maximizing your profit is a key factor when it comes to making money. Newbies tend to fall into this trap as they are nervous of giving their profits back but you really need to run your winners and squeeze as much out of them as possible and the best way to do this is to have an exit strategy planned in advance. Bigger wins are good because they are more likely to offset any losing trades (and believe me you will have losing trades!). Remember, you won’t make much money if you are too keen to book your profits early.
4. As a trader don’t try and rationalise the market – the market can stay irrational longer than you can stay solvent. Trade what you see not what you think. Last Thursday I waited until after the BOE decision to enter a trade to the short side – even though I’m a trader by profession and know what a hike in rates should mean, I am not arrogant enough to say I can judge short term sentiment.