When you use leveraged methods of dealing like spread betting, a lack of planning and foresight can cause significant financial loss. So it really does pay to do your homework.
- Take your time to understand the markets that interest you, the factors that drive them and how they’ve been behaving
- Use the resources available, such as news sources, books, websites, seminars and webinars, to keep yourself informed
- Practise dealing using a demo account, where you can get comfortable with using your spread betting platform and try out strategies in a safe environment
- Create a spread betting plan to suit your goals, your skills and knowledge and your feelings about risk
Not following a plan
Spread betting without a plan is rather like making a journey without a map
If you spread bet without a plan, the outcome is unlikely to be as you intended.
But even having made a plan, you may often be tempted to ignore it and stay in a little longer on one position, or take a larger risk than usual on another. However, if you’ve really taken the time to develop your plan then you should have faith in it being the best approach for you.
Even the best spread betting plan remains only a guide, but the better the guide, and the better you can follow it, the more success you can expect in the long run.
Overreliance on software
But, as useful as all of these tools are, it is important to remember that they are only tools, and must be employed with common sense. It’s important that you understand the underlying concepts and the reasons behind what the software is telling you. This will allow you to see the bigger picture and avoid unnecessary mistakes.
Lack of record-keeping
Make a note of your spread betting decisions to avoid repeating mistakes
If you’re new to spread betting, the details of your early positions, including your thinking and the decisions you made, may still be clear in your memory.
However, unless you keep a spread betting log or diary, the chances are that over time this information will be forgotten. This will leave you unable to remember and replicate what you did right, or avoid the same mistakes.
Your spread betting diary should contain details of each position and all the factors that affected it – including your emotional state. You might record:
- Why you decided to open the bet
- The levels at which you opened and closed
- Where you placed your stops or limits
- How you felt at the time
As you build up a history, you’ll start to identify patterns and work out which strategies are most successful for you.
It’s crucial that you enter and exit positions at the best possible time to maximise any profit or minimise any loss.
Although getting your timing right isn’t an exact science, there are a few tools that can help:
Not cutting your losses
Sometimes a position doesn’t go to plan and you end up with a running loss. There will be occasions when you can hold on and eventually turn a profit, but at other times it’s best to quit before the situation worsens.
When you’re deciding whether to exit a losing position, emotion may influence you: whether it’s fear about loss, or pride and reluctance to concede. However, maintaining a dispassionate, strategic approach is the key to consistent success. This includes setting stop-losses and following a spread betting plan.
The right decision on any given bet may vary from person to person, but by using tools to help you stay objective, you’re more likely to make choices that lead to a satisfactory outcome.
If poor data derails a steady upwards movement, it doesn’t generally signify a downtrend
Wrongly identifying a short-term market movement as a long-term trend is one of the more common spread betting mistakes. A trend is the long-term direction a market is taking, and is generally determined by macro-economic influences rather than individual political or economic events.
So, for example, if the Dow Jones has been steadily moving upwards over the long term, and then poor US employment data suddenly derails it, this doesn’t necessarily signify a downtrend. You might see the index resume its uptrend after the initial volatility subsides.
There’s an abundance of software available to analyse market trends, and these tools can be valuable if used correctly (see above). You should just be careful to distinguish between short-term and long-term influences, as these may not be aligned.
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