Spread betting is very flexible in that it allows you to enter positions a bit at a time and this allows you to close part of your bet and keep the rest running. I sometimes see traders saying they treat spread bets the same as normal share dealings. Well, some spread betters don’t. There are certain characteristics that apply to spread bets (such as that facility to phase entry/exit without added dealing costs). Seems a shame not to take advantage of this trading product quality.
So how does this strategy of entering and exiting positions in tranches work in practice? If wanting a big stake you could split it into smaller bets, with differing auto-stop losses on each tranche. That way your exposure gets reduced on initial blip, gets reduced further if it fails to recover, and only gets fully shut down if summat serious is happening. Some firms also allow counter-bets – so if not wanting to get out of a long-term bet during short-term contra move, can ‘force open’ an opposing bet for a brief period.
EDIT: When trading shares conventionally, it is still a good idea to set mental exits in phases. Might for example reduce slightly on say a 5% drop, again if drop breaches 10%, and only exit remainder if down 15% (or whatever other set of numbers is appropriate per stock). Though that of course does incur added dealing costs that need factoring into those percentage settings).
“Phased exits take away the “hold or dump” pressure that sometimes afflicts traders if looking at the entire holding. You could for instance split the bet, banking half when showing a gain of twice the initial stop distance, and leaving the initial stop where it is for a while.”
Susan, one successful trader says that she normally scales in and out….usually up to 4 x both ways. ‘It’s a plan, not a system, so if I want to speed things up and get In or out faster I can. The scaling part simply means I don’t need to stress over being right at any one point in time. If I sell 25% of a stock and it goes back up then I have only lost 25% of that rise. If I sell 25% of a stock and it keeps going down then I sell the next 25% and am pleased I have saved something on the 25% sold. The only danger is that the last sale can often be the bottom but hey ho….it wasn’t in 2008. This strategy could easily be applied to a spread betting account, where stocks can be traded from a few pounds a pop.’
‘It’s really all very sleep at night stuff. But, isn’t there always a but, success depends on me making more good plans than I make bad plans and here is where I – all of us – can get unstuck. I have seen from my own results over time that when I start to make more bad plans than good plans…e.g. more losing trades, I must speed up my exits.’