In this section, I detail several general winning strategies that you can use and modify to your requirements to help you have a successful spread betting career. The analytical information that you have learnt will allow you to clearly identify the best spread betting opportunities, and to implement the trading strategies.
In stock market strategies we cover the protocols followed by investors of a particular bent. Most traders and investors stick to one approach and follow it consistently. Some mix it up a bit using different tactics at different times depending on economic cycles. Other investors use hybrid systems based on a combination of methods.
Why stick to a Strategy?
A strategy is a plan of action. Strategies give us a framework for making decisions and achieving results.
Strategies give us guidelines to work within and can provide some guidance when it comes time to decide which direction to move in regarding buying or selling stocks.
Strategies can be based on long-term or short-term information, and cater for the differing risk and reward appetites of individual investors.
Strategies based on the interpretation of short-term data will require an investor to monitor the markets very closely for the duration of the trade. Short-term investments may require a more vigilant approach than strategies based on longer term data.
Before getting started in stock market trading, it’s a good idea to research the strategies used by successful investors so that you can incorporate the best ideas you can find.
“Absorb what is useful; reject what is useless; add what is specifically your own” – Bruce Lee
“Trading strategies that will help improve your bottom line should be taken advantage of whenever possible. Irrespective of how unconventional the spread betting strategy might seem, it is worth the time to at least trying it out before simply concluding that the trading system won’t work for you. Markets and circumstances change and ways of doing business evolve quickly. It is very easy to find yourself in the situation where if you are not moving forward, you are being left behind.”
- I make my financial decisions based on news and the economy.
- I make my financial decisions based on personal analysis, e.g. charts and calculations.
- I often have a ‘hunch’ about an investment and follow it.
- I put in a lot of effort to minimise the risk of my investments.
Some investors tend to hedge their exposures around important dates such as company results or or big economic news. Others will utilise technical analysis such as support or resistance levels or RSI to indicate when a market is approaching a possible trend reversal.
First, some general advice about spread betting and applying these trading strategies. Consistency is critical in spread betting. The markets change fast, but if you follow your system, you will be able to learn from your mistakes and react effectively whenever situations change. Your foremost priority is to preserve your capital, as if you run out of money your spread betting will come to an end. If you place spread bets in accordance with a sensible plan, the profit will take care of itself. In particular, make sure that no one bet can lose you more than 2% of your current account. If you are especially cautious, you could even make this one per cent.
Remember that you can make money whether the market is going up or down. When the market is going up, you will primarily be looking for long positions; if the market is falling, you should take short positions, and you should learn to be comfortable doing either.
You should become familiar with two or three asset classes, such as stocks, indices, and foreign currency, and make sure that you only bet on financial instruments that you understand. It is a good idea to know several asset classes, as markets vary in cycles and you want to be capable of betting on the most appropriate class at the time.
Always be aware of the overall market conditions. If the climate is bullish, you will focus primarily on finding securities that are trending up and taking a long position in them. In a depressed market, your chief action will be shorting financial instruments that are trending down.
Don’t let emotions cloud your judgement and cause you to make irrational decisions. Before you place any bet, you must predetermine the point where you will know you are wrong; in other words you need to have a financial spread betting strategy to predetermine your profit goals, maximum loss allowances and entry/exit points for every trade. Before you have a position, it is easy to be objective and to calculate this clearly; once you are in the trade, things can become confused by emotion, and you will be tempted to stretch the losses in the hope of a turnaround.
On the opposite side, you should always have a judgment of how much you think the bet can make. This can be based on sound technical analysis, such as reviewing the nearest support or resistance level where you expect the price move to stall. The amount you can make should be at least twice the amount you stand to lose, otherwise you should not place a bet. Remember that one of the secrets of successful spread betting is to make sure that your winning positions profit much more than you lose on each losing position.
You must always have a plan to exit a winning position. This can be based on hitting a predetermined target price, or might involve exiting after a certain amount of time, because if your money is tied up in this bet it is not available to chase other opportunities which may be more active. Another favourite way is to keep moving a stop loss order up close to the current value, so as soon as the run falters you are taken out of the trade. A trailing stop order has a similar effect.
The general strategies put forward here are based on sound principles and technical analysis to determine the appropriate timing. You should consider your own values and trigger points for betting, and review these at regular intervals by looking back in your trading diary to see whether they could be incrementally improved.
By and large most spread traders tend to open long positions with many operating their trading account like a mini-stock broking account while others prefer to run it like a mini-hedge fund options – short BPTY, long 888 Holdings for instance.
The first couple of strategies we will review involve buying or selling at the end of a retracement, when you expect the trend to resume. The second couple of strategies involve identifying strong securities on which you take a long position, and weak securities that can be sold short. After this, we look at the strategy that can be used when the stock is trending sideways, which may be about 40% of the time.
One parting comment about your trading strategy if I may. Consistency is important but you should still be prepared to change or tweak your spread betting strategy if it is not working for you. Testing and tweaking your financial spread betting strategy can be a lengthy process, but a reliable trading plan will help you trade with a cool head: the most valuable asset you can have in financial spread betting.
Once you’ve gotten down the basic strategies described above, you can learn and start working on the following strategies and tools that are a little more complex to take your trading skills to the next step.
Whether you’re trading the market on a minute chart, implementing a trend-based focus on daily price patterns, or a long term buy and hold strategy based on macroeconomic influences, our guide aims to provide an overview of a variety of key trading strategies, and discusses the advantages and disadvantages of such techniques.
“Mindset of a professional trader ‘The real crux comes from you trading your strategy – with me when I try a new trading strategy I will first backtest it, then dry run it and if I’m still happy with how it looks, then I run it with smaller stakes over a month. This is the real acid test on how it performs over a period of time with money on the table – if after that month I’m satisfied it will go into my my full-on strategy bag,actually trading it over a period of time is the only real test and answer and also knowing when to apply that strategy. A lot of people give up on decent strategies just because they apply them in the wrong market, although defining a ranging and trending market is far from easy!'”