As with all kinds of betting it is important to have a strategy before you begin. Like in horse race betting, those who just have an occasional ‘flutter’, or who place a bet on a whim, very rarely win anything worth winning, and usually show a loss on their efforts. They are the ones from whom the bookies make their living. On the other hand, it is often those who follow a logical strategy and who stick with it who actually show a profit on their work, and who experience the biggest and the best wins.
Remember that the job of a bookmaker, at the end of the day, is to use a strategy to take more money from you than they have to give you back. This is their whole reason for being in business. They use a clever strategy to do this. Therefore, if you want to make more money back from them than you give to them you must, in turn, use a strategy that is designed to achieve that. At the end of the day it is almost irrelevant how little or how much you know about the financial markets themselves, or that the bookmakers know more than you – which they usually do. If you have a basic strategy that is designed to produce a good long term profit then you are well on the way to success.
In this section we will look at eleven key spread betting strategies that will help you be successful in financial betting :
Key Spread Betting Strategy 1: Only Bet Money You Can Afford To Lose
This applies, of course, to all forms of speculation : Don’t spend mortgage or bill money, and certainly don’t borrow money to use for betting. The logic for this is simple, and very powerful too. Quite apart from the fact that you don’t want to lose money you can’t afford to lose you will be able to make much more reasoned,
cool-headed decisions if losing the money doesn’t really matter to you and you don’t need to win to recoup the original stake.
If you don’t have much money to get started then simply start with whatever you can afford. You can practice your skills and then use your winnings to get involved in much bigger trades. It doesn’t matter how little money you have – you can still get started even with the very smallest amount and can still win very worthwhile amounts due to the forces of leverage which operate in financial betting.
Key Spread Betting Strategy 2: You Win Some, You Lose Some !
As a financial gambler you mustn’t expect to win every trade you carry out. This is by and large impossible and even the most successful people make some losses. You must accept that some losses are part of your strategy. The secret, of course, is to make sure that your losses are much smaller than your wins. Take a long-term view, and aim to make a profit over a month, rather than just over a week.
There are also many situations in financial betting when it is acceptable to take a small loss or cut a loss in order to prevent a much bigger one. This might happen when, for example, you have completely misjudged the movement of a market and instead of waiting for your bet to expire naturally you decide to close it early (more information on the best ways to do this is given elsewhere).
Key Spread Betting Strategy 3: Have The Correct Attitude
To achieve successful trades not only takes good judgement but the right attitude. You must be in control of your emotions. It is no good losing your temper or giving up every time things are against you. You must stay focussed at all times and look further than the day ahead. All markets change every day and there will always be times when trends go in the opposite direction to that which you have anticipated, or seem to do quite bizarre things. Smart traders recognise this and, while taking notice of it, try not to be put off by it.
Very successful traders may undertake 50 trades a day. From this they might expect 30 to go against them. But they never worry as the remaining 20 trades will return a big profit. You can use this principle to foster the correct attitude when you begin too. For example, if you carry out just one trade every working day for the first two weeks (10 trades) and find that six go against you and four produce a profit you can use the same strategy to carry out 100 trades over the next few weeks knowing that there is every chance that 40 will produce a profit.
Always stay focused. Don’t allow yourself to change your mind every few minutes. If you are ‘long’ and the markets start to ‘shorten’ don’t suddenly telephone your trader and cancel your trade without thinking it through very carefully. Keep your nerve and think long term.
Key Spread Betting Strategy 4: Get Good Information
I have already outlined the various sources of information which are available to you, and the importance of getting good information cannot be understated. Remember if you start with information which is wrong you will find it difficult to make a good decision. And, worse still, if you make a bad decision your own bad judgement will be magnified by the poor information you have received.
If anything there is far too much information on the financial markets nowadays. A good choice is to try a selection of sources but then home in on two sources which seem to work the best for you. Stick with these sources as you develop your skills. The main risk of getting too much information is that information from one source can cancel out information from another source!
Key Spread Betting Strategy 5: Practice Makes Perfect
One of the most useful techniques to use when starting in this market is paper trading. This allows you to refine your strategy and practice individual techniques, and do it without any risk or worry whatsoever.
Here’s how paper trading works : You follow the markets for a few weeks (or even just a few days) and then choose a prospective trade from the many options available – more about this later. You then make this trade – but only privately with yourself. You do not place it with your bookmaker, or let any money change hands. Then follow the fortunes of your trade to see whether you lose money – or make it. And learn from that experience.
If you lose you do not lose any money. If you win, of course, you don’t win anything except that you have still gained a great deal of experience which you can then translate to real deals.
You can do one or a hundred paper trades simultaneously, as long as you have the time to monitor them. You can also continue paper trading alongside your real trades once you get started to further refine your skills. If you discover a new betting strategy and want to make sure that it is likely to be successful then test it out using paper trading first.
Some of the financial spread betting providers have financial betting demo accounts available on their websites where you can practice your skills without actually risking any more.
Key Spread Betting Strategy 6: Start Small
This is one of the most difficult strategies to follow, especially when you are successful with your first few trades, but long term it will pay off. When you first start, or first start in a new market, always start with small bets and practice and refine your techniques with these small sums. Only when you are enjoying success consistently should you raise the stake to an amount which is going to be more rewarding when you win, or increase the risk you expose yourself to.
This is a simple approach which has proved incredibly successful for many new traders : First, decide a sum of money you can afford to invest and lose. For example, £100, £200 or £500. Consider this a ‘tuition fee’ for teaching yourself the art of successful trading. Even if you lose this money it doesn’t matter. Because you will have learned the techniques you can follow to make hundreds and even thousands of pounds from a single trade.
Clever Strategy : Generally you should start with whatever your bookmaker takes as the minimum bet size. For example, £5 per point on the Daily FTSE. And, only bet on the smallest likely rises or falls for that market. For example, on the Daily FTSE the minimum possible daily rise or fall is one point, so think in terms of betting on rises or falls in units of tens and twenties – not several hundreds.
At the end of the week, if you have been successful, increase the size of your bet in money terms, eg. from £5 to £6 and so on. Then, as your success continues deepen the depth of the bet slightly, betting on slightly larger rises and falls in terms of points, depending of course on the state of the market. If you are not successful do not raise the size of your bet or the size of your anticipated rise or fall that week, or even reduce them. In other words, concentrate on refining your strategy with increasingly larger sums of money before increasingly larger rises or falls. This controls your risk by limiting the amount of leverage operating on the bet, at least until you have developed your skills. Ignore this strategy and the incredible leverage that is created can translate into a major loss if the market goes against you.
Similarly, if you are incredibly successful after your first week or two – and it does happen – do not be tempted to think you have cracked it and ‘go for broke’. It is very unlikely you have learned all there is to learn so quickly, and more likely to be just a peculiarity of the market. Keep your increases small until you have developed the skill, confidence and the resources to support more ambitious bets.
Key Spread Betting Strategy 7: Stay Away From A Static Market
A static market is when prices are moving very slowly or even not at all. This is all relative of course. Some markets are more liable to become static than others, and a small price rise in one kind of market may actually be a giant step in another, hence the importance of getting to know the market in which you wish to trade and how much it has moved over time. For example, in the Daily FTSE a stagnant market is usually one where no movement occurs on a particular day, or perhaps no more than 10 points in any one day.
Either way, a stagnant market is not a good time to begin a trade if you are inexperienced. It is extremely difficult to predict how and even which way they will move. It is usually better to delay your trading until there are movements one way or another.
Key Spread Betting Strategy 8: Quit While You’re Ahead
This strategy is one that is very familiar to those who bet on horse races, but it is even more important with financial betting. With horse race betting, for example, there is a temptation, when you seem to be on a ‘lucky streak’ to keep on reinvesting your winnings into more and more bets. Ultimately, of course, this normally results in your losing your original stake plus most or all of the money which you have won.
With financial betting this sort of approach must be resisted, because there is no such thing as a ‘lucky streak’ with the financial markets. All changes in the markets have a cause and effect, an action and a reaction. If you are winning money at one point then this is down to your own skill and judgement, not luck, and you must make further use of your skill and judgement to make further wins. If, following a period of wins, you feel uncertain about continuing then quit – take some time out to study the market again and go back to it only when you feel confident.
One very important reason for quitting while you’re ahead is that with financial betting, unlike horse racing, you can actually lose money as well as winning it. So, knowing when to stop can not only maximise your profits, but stop losses.
Be Wary of Rollovers: Many financial bookmakers offer rollovers, allowing you to close one trade and take out another – or roll over your winnings on one bet into a new bet. They offer a concession on the spread for the new bet in order to make this more attractive than if you don’t rollover. Be wary of this offer since it can lead you to place bets which you might not otherwise have considered.
There are some situations, however, when the total reverse of the above applies and you must let a trade run. In other words, rather than quit while you are ahead and take a small profit you must let the trade run and take a large profit. This can be achieved by knowing when the particular market has run it’s course for that particular day or period and further gains are unlikely. Only long term experience will tell you this.
Key Spread Betting Strategy 9: Use Controlled Risk Betting
Controlled risk betting is a strategy that is highly advisable for new traders and those with limited resources. It is also used by experienced traders, especially on bets about which they are unsure, or in more risky markets. It is highly recommended that you carry out controlled risk betting, at least for your first few weeks and as long as you feel that you need the extra protection.
Controlled risk betting – also known as stop loss betting – is exactly what it says. It limits the amount of money you can lose. Without such protection you can theoretically lose an unlimited sum.
The only problem with stop loss trades is that although they prevent high losses they also prevent high gains. Here is how a stop loss bet works :
You expect the Daily FTSE market to go up, so you place a bet at 5320 having been quoted 5314-5320 by your bookmaker. You decide to bet £30 per point and decide that, should your bet not work out, the most you are willing to lose is £900.00, which is 30 points. (This may sound a lot but, in fact, is a relatively small amount if you have made several thousands of pounds over the last few days!)
Therefore you instruct the dealer to place a stop at 5290. As trading begins the market starts to fall and by 11.30am it has fallen to 5282. Your trade, however, was automatically closed at 5290 so you lose only the £900.00 you anticipated and not, potentially, much more as you would have with a normal bet.
The snag is, of course, that if the markets start to rise (as you predicted) and end the day at, for example, 5372 your trade has been closed so you will not make the £1,560 which you would have made should you not have placed a stop loss order.
When using your stop loss you should note that you can cancel or change your stop loss during the day. So, in the example above, if the market falls to 5300 during the
day but you are still confident of your original prediction you could contact your bookmaker at 5300 and remove the stop loss, or lower it to, say, 5280, so that your trade will not be closed before the market has had chance to recover.
Another strategy used by some traders with success is to decide the amount which they are prepared to lose and then half the bet point, thus doubling the number of points which the market may move before your stop loss level cuts in. In the example above you could instead bet £15 per point instead of £30, and set your stop loss level at 5260.
Key Spread Betting Strategy 10: Act Quickly
When trading you need to act promptly. Markets don’t wait for those who dilly-dally. To have an attitude of ‘I’ll wait another minute or so’ could cost you hundreds of pounds in lost profit – or even turn a profit into a loss. Once you have used your skill and judgement and decided that you wish to make a trade do it immediately. Don’t wait to ‘see how things go’. And – if you are not sure about making the trade then don’t make it at all!
Key Spread Betting Strategy 11: Keep It Simple Stupid (KISS) !
When you are first starting out a very good strategy to follow is not to trade in too many different markets at once. This way you can focus more closely on a given market, understand its history, and also monitor it more closely. Many experts agree that when you are starting you should not generally trade in more than three markets. However, many new traders trade in just one and this is perfectly sensible and acceptable.
Whatever market or markets you decide to trade in always practice these eleven key strategies. They will stand you in good stead. Only ever ignore these strategies when your own experience and expertise proves that you know better!
Traders often reduce or damage the inherent edge in their strategy by over complicating their trading plans. In an effort to reduce emotional discomfort, they overuse indicators and other technical tools as they try to use technical confirmation to justify their positions. Over complication is at its heart a symptom of incomplete risk acceptance. The trader is uncomfortable with the level of risk being assumed and seeks any crutch available to sooth this nervousness.
One of the first tasks for new traders is to understand risk that they assume, and then work to simplify and streamline their trading plan. They can start to build confidence in their plan, confidence, experience and a honest acceptance of risk will allow them to focus on the price action and their market opinions, instead of worrying about the risk exposure of some perceived non-confirmation in the squiggle of an indicator.
It’s often a good idea to reduce their technical input by using the simplest chart possible.
A simple line chart can eliminate many distractions and help to streamline their decision-making process. For many, the suggestion to give up the indicators comes as quite a blow to their ego. They have spent a great deal of time of studying technical analysis, and have become fairly expert with all the tools and indicators available. When they finally reach a level of frustration that is high enough to seek out an edge consultant, they are often convinced there is some ‘secret’ tactic or indicator they have yet to discover.
They are always seeking one more idea, when in fact ‘in reality’ it is quite the contrary. The more traditional trading tools and situations you are familiar with, the better your ability to spot and trade against the crowd.
Remember in any financial market the majority will always lose money. Understanding what traditional technical analysts (and therefore the majority) will be focused on is key to obtaining efficient entry and exit points. The more you know about the majority’s motivations and tendencies the stronger your edge as a trader will be, thus the more money the majority will lose to you.