Spread Betting Strategies That Every Financial Trader Should Have
Spread betting without any strategies is like a building without a plan. This type of trading is fraught with danger, and these strategies are intended to help you undertake spread betting without falling over the obstacles that most newcomers to financial trading do.
1. Avoid day trading
There’s no room for negotiation on this one. The only markets that usually move significantly on a daily basis are foreign exchange and indices, such as the FTSE and the Dow, so naturally the newcomer is directed to day trading these markets. But the combination of this with a spread betting account is usually disastrous. The volatility in these markets works against day traders, and spread bets can easily reach their stop level.
In summary, it’s all but impossible to make profits from day trading forex or indices with a spread betting account. The successful traders have their trades open for at least days at a time, and often weeks.
2. Be 100 per cent in control
Control your leverage. It’s that which can give rise to rapid and substantial profits, but it can also wipe you out with just a casual and temporary reversal in the trend. So be in control.
Until you have at least seven thousand pounds or dollars in your account you should keep to £1 or $1 a point in your bets. Before you risk any real money (as opposed to a demo account) you should study the currency pairing or index concerned until you know it as an old friend. Study the price history and the charts. Don’t bet for the sake of it. Wait until a trend has been established.
Control your risk. If the trend is upwards, go long but with a stop loss set at 10 per cent or more below the three month low. This itself is an arbitrary period – you may decide a longer period is required, depending on the behaviour of the price level. Don’t risk more than 5 per cent of your account balance. So if your stop loss level is 100 points then your bank must be an absolute minimum of £2,000 or $2,000, as the case may be. £3,000 or more would be better.
3. Apply rigid self control
On every trade you do, set the stop loss and profit target levels and stick to them at all costs. If your stop loss is 100 points away from your opening price (based on the price history of at least the last 3 months) then your target profit should normally be no more than 50 points (though this can vary according to the charts and the price history).
Prices in these markets rise and fall all the time, and even in a rising market there can be substantial falls, hence the need to have a substantial “drop zone” in the form of your stop loss. This applies particularly to currency spread betting.
4. Study your market fundamentals first, and then the charts
A combination of knowing what is going on in your market, and a knowledge of the charts and moving averages relating to the price history is a formidable weapon in your armoury. Come to a decision as to whether a price will go higher or lower, and then confirm it through the charts and other indicators. The trend really is your friend.
5. Find yourself a mentor
This is probably the most important piece of advice I can give. Nearly all successful financial traders have or have had a mentor – someone who actually trades themselves and who is prepared to teach you to do it as well. He will have used successful spread betting strategies and he will be able to pass them on to you.
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Philip Gegan
