1. The more profitable trades consist of trends where a spread trade is entered long or short and is left to run with the trend for weeks on end.
2.The best times to buy a market is often when the herd is terrified and you can smell blood in the air. The financial markets crash because of insufficient buyers. For a bull market to continue rising you need to continue pumping in new money. If all investors are bullish on a market, then it has no other way to go but down as investors that wanted to buy have already done so.
3. Avoid exiting trades too early. It can be tempting to close your trade as soon as it has turned to profit but closing bets too early is wrong. You REALLY have to try letting profits run as much as possible. Stick to your trading strategy and only exit your position once it has reached your target level. This can even be done automatically if you set a limit order so you do not have to be continually in front of the screen.
4. Do not stay in a trade for too long. On the other hand it can be easy to fall in love with a stock and get greedy. Markets go down as well as up and trades will not go your way forever so you may see the market reversing direction at some point. Stick with your trading plan and exit when pre-defined levels are reached. If the market is going against you and the trade is loss-making, do not hesitate to exit. Avoid ending up in a position where you are watching as your money dwindles away while you hope for your trade to recover, as it may already be too late.
5. Overtrading is a killer. Do not do it. This is one of the most common mistakes that beginners tend to make. Leveraging your spread betting account too high by taking on big positions relative to your initial deposit outlay puts you in a very vulnerable position. A tip is to limit your leverage to 15 to 20% as this gives your trades a bit of leeway for normal everyday market noise and reduces the chance that you will be forced to exit positions due to insufficient margins.
6. Develop your Trading Plan. Plan your trades out before plunging in. This is one of the most important principles in trading – you need to have a regimented plan and trading system to have any chances of success in the long run. Many day traders do not realize that trading is more complex than it may initially appear. Do not be greedy and set realistic profit targets. Admit your mistakes and try to learn from them. Be confident in what you are doing. Keep all these in mind, and you will not go wrong.
7. When trading on leverage discipline is paramount so as to avoid your cash balance suffering a boom or bust. Overconfidence, or so called ‘conviction’, leads spread traders to disregard evidence that contradicts their view. Golden rule for me is to get out if a trade goes opposite to what I expected – end of day or intraday.
8. Control your Emotions. Emotions are a no-go in trading. Always be objective with your trading decisions. The old saying applies here as well: ‘never marry your trades’. If you are in a trade and the market keeps moving against your position, admit that you have got it wrong. Hoping is futile and will only lead to more pain.
9. Cut losses at an early stage. How many times have we heard that? The key is to make sure that your winners offset any damage caused by your losers and you have some risk management measures in place. Stop losses can help limit any hits from individual share holdings. ‘… mate I have been holding since 21p. And when I see shares lose 80%+ in no time and without apparent reason, then I simply cannot push the button. 50% loss ok, but % 80+… it was all over for me.’ In these situations more often than not you end up selling at the bottom.
10. It is essential to have a high tolerance for risk and a gambling mentality. On the other hand you have to be risk aware and constantly try to make your trades more efficient by getting the odds on your side.
11. Spreadbetting on FTSE 100 companies requires a greater awareness of the macro economic picture. For instance, stock prices can move rapidly when economic news are about to be released, it is immensely important to be able to trade when this happens. Likewise, London prices react to movements on Wall Street so an eye has to be kept on the Dow Jones Index.
12. Avoid the temptation to take positions outside your chosen sphere of knowledge. I usually make sure to dedicate sufficient time to research ‘my shares’ well but once or twice was tempted to take a position on a share I did not know which had experienced a sudden price movement. Most of the times it did not go well…
13. Have a trading diary. Many successful traders deem it necessary to keep a trading diary. Writing in diary form can allow one to describe the daily events and also express your trading emotions. A trading diary let’s you learn from both your technical and psychological mistakes and become a better investor.
14. Beware of your Emotions. Develop a clear strategy for emotional risk management. I cannot stress the emphasis on controlling emotions sufficiently. Especially how hesitation and doubt can play a critical factor when your on the clock. Do not trade when stressed from work, family or finances. If you cannot separate emotions from your life when trading you are more likely to make rash decisions that may cost you dearly.
15. It is gambling. But it is about making high probability bets and limiting the odds of failure. I have read enough books on it to know the facts. The vast majority of people will keep losing money for the same reasons. Downturns in any trade is where doubt sets in and the old psychological mind games set in, so with my getting to break even and half banked as soon as possible it allows me to have psychological control over the trade. I admit that sometimes I miss bigger moves, but my results say, the way I am trading suits my personality, again in that new wizards book a lot of the traders interviewed stressed how important it was to match up your trading plan with your strategy in fact a few had given nut and bolt access to their strategies and found others had not been unable to convert it into long-term gains.
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