Beginners guide to Spread Betting

(This may seen over simplified or obvious but it’s my experience)

So you think you want to get into spread betting?
You think you have a winning strategy?
if so:

1)
Open up a DEMO ACCOUNT with a spread betting firm

2)
You will probably get £10,000 to play with.

3)
Trade with that virtual £10,000 as if it was your hard earned cash,
and do so for a least 2-2 months with your theoretically ‘winning’ strategy.

4)
If your strategy is ‘truly’ sound you should be able to easily turn £10,000
into £20,000 with minimal/controlled losses.

5)
If your strategy cannot be put down on paper in a clear procedural form,
indicating stop losses, good/bad market conditions, signals, patterns etc,
then it is flawed!

6)
If you find yourself consistently losing chunks of your £10,000
then your strategy is flawed! Change it, or give up.

7)
If you find yourself opening positions out of ‘greed’ then your strategy is flawed

8)
If you find yourself closing positions out of ‘fear’ then your strategy is flawed

9)
If you find your self seeking holy-grail advice on how to trade profitably then
you don’t even have a strategy!.

10)
There is ‘no’ express route to trading successfully.
Trading is like trying to fly a Boeing 747: if you don’t understand the
weather conditions that can affect you (i.e the market), and don’t understand the controls
(i.e your strategy) and don’t know where the escape exits are (i.e stop losses)
then you will eventually CRASH AND BURN!

There is no substitute for doing your own hard laborious research,
..back test ..back test, and back test ..even more! Profitable trading
is not just about making a trade, it’s also about knowing when not to trade.
It sound obvious, but how many times have you opened a position because
it looked 'right' only for it to go against you? Do you even know why the market
went against you?

Note, for every trade you lose, you’re down the spread (e.g. 2pts) plus your stop-loss
e.g. 5pts) = 7pts. You’d better have a winning strategy! otherwise each time you loose you’ll have to win back 7pts x stake just to break even!

If your can prove to yourself that your procedural strategy works something like 75% of the time -
(i.e. 3 out of 4 trades) on back tested data/charts, and shows consistent, controlled gains (not just a lucky winning streak) then you ‘may’ just have a working strategy.

Good luck.
Ash.

Excellent post Ash.

Very sound advice there. I would also suggest that if a beginner is looking for a demo account they try one with a real-time charting package. (CMC have one).

This makes trading a strategy and testing it over time more accurate. If you are trading on only a bid and offer price with a trading demo, and using free charts that lag behind in time - such as Yahoo, then your're on a hiding to nothing. No strategy will ever work in these circumstances.

If your strategy involves candlesticks, support & resistance levels etc, then you need to be able to see them on a chart in relation to the current market action.

I totally agree that if you cannot write down your trading strategy then it will not work. Your strategy needs to be concise and understandable and it also needs a money management strategy. How much are you willing to risk on each trade? 1% of the capital is the norm - 2% at the outside.

I would also recommend keeping a trading diary as well. This can be done by jotting down your reason for entering a trade at that particular time, what your projections are for the exit. Then monitor what happened and how accurate your trade was and how much profit/loss it made. Start a new page for each day and you will soon see a pattern emerging. Trading the candlesticks more than the indicators etc. Writing it down as it is happening can clarify your thoughts as well.

Just my two penny's worth.

Some good advice there. I would especially agree with paper trading first.

Capital Spreads offer a free £10,000 demo account:

http://www.capitalspreads.com

Also, never average down - increasing your position when the market moves against you.

It can be a good idea, though, to increase your position once you are already in profit.

For example:

You open a position for £1 a point on the FTSE at 5000, stop loss at 4900.

The market moves to 5100.

You are £100 in profit.

You could now think about perhaps buying another 50p and moving your stop to 5000.

Should the market move against you, you will break even on the £1 per point trade and lose £50 on the 50p per point trade.

Use good money management too. Never risk too much of your capital per trade. Search for "money management" on this board to find out more.

Thanks for that, I am a novice who will be entering the world of spread betting soon!

I have read some information on the capitalspreads website. They say they would not be able to guarantee your stop loss, why is this?

soosta said:

Thanks for that, I am a novice who will be entering the world of spread betting soon!

I have read some information on the capitalspreads website. They say they would not be able to guarantee your stop loss, why is this?

Click to expand...

Some spread betting companies have a Guaranteed Stop Loss feature. Capital spreads just don't happen to offer one. IMO the standard stop loss they offer is good enough, but then again, I only trade FOREX rather that more volative stocks/indices. There is less change of a massive & sudden contrary move spiking way pass your intended stop loss and leaving you further out of pocket than planned. That's the main difference between standard and guaranteed.

Yes, it can still hapen in forex but it has never happened to me as forex trends fairly well.
If you're really nervous about your position ever being closed-out several points pass your specified stop loss then I'd say look for a service with a GTS feature.

Ash.

Thanks for the reply..

One other question for you. What would you recommend a novice to practice and eventually start trading with.. Shares, equities, indices or forex? I was thinking forex as you mentioned above it is the least volatile. Is there any information for example past trend data available online and anything else that would allow a newbie to create a trading strategy?

Thanks in advance.

Some top notch advice here, well said to all.

Yours

UK

Newbie to spread betting

Hi,
I want a simplified strategy to paper trade,sir
.I am expecting some workable trading strategy with minimal investment in spread betting

beg to differ with points 3 & 4 above:

"3)
Trade with that virtual £10,000 as if it was your hard earned cash,
and do so for a least 2-2 months with your theoretically ‘winning’ strategy.

4)
If your strategy is ‘truly’ sound you should be able to easily turn £10,000
into £20,000 with minimal/controlled losses."

No, a newbie shouldn't be able to double your fictitious (or even real) money in such a short time, even if "your strategy is sound" and BTW, even if that should read "2-3 months". That would be extraordinary/ridiculous.
Doubling your money on a lucky break may well happen, but to double your money on any sound strategy or technique, will take many years of experience. It's almost always, in other words, a very long ride, and newbies shouldn't feel that there is any quick route to success.

Come to think of it, any strategy which returns anything positive in a few months, never mind doubling your money, would, frankly, be an encouraging start.

But make no mistake, it's "a start" and only a start. Once again, I can't stress enough to any newcomer that it'll be a long journey...

HTH

peakoil said:

No, a newbie shouldn't be able to double your fictitious (or even real) money in such a short time, even if "your strategy is sound" and BTW, even if that should read "2-3 months". That would be extraordinary/ridiculous.

Click to expand...

Not at all. A beginner will inevitably go all in. The chance of a beginner doubling his money at the beginning is rather high compared to the more experienced who don't go all in. The question is not whether it is possible to double the money, but rather is it useful to double the money given that it will be lost on subsequent attempts to double some more ?

EnlightenedJoe said:

Not at all. A beginner will inevitably go all in. The chance of a beginner doubling his money at the beginning is rather high compared to the more experienced who don't go all in. The question is not whether it is possible to double the money, but rather is it useful to double the money given that it will be lost on subsequent attempts to double some more ?

Click to expand...

Your statement is false and misleading. Not sure where you got that from but more than likely disinformation or gamblers mentality. Most beginner traders regardless of whether they go all in or not, will lose. Think about my statement here:

If you were right and I were wrong then hedge funds, banks and even including me would throw serious money at noobs and cash out when they doubled the pot. The majority of noobs lose. In fact most 'wannabe traders' lose. And that's fact.

Lee

Lee Shepherd said:

Your statement is false and misleading. Not sure where you got that from but more than likely disinformation or gamblers mentality. Most beginner traders regardless of whether they go all in or not, will lose. Think about my statement here:

If you were right and I were wrong then hedge funds, banks and even including me would throw serious money at noobs and cash out when they doubled the pot. The majority of noobs lose. In fact most 'wannabe traders' lose. And that's fact.

Lee

Click to expand...

wabu27's thread is a good example of a beginner winning big quickly. Winning big does not necessarily need skill, just the willingness to take large risks. Hedge funds know this too, and this is the reason they reduce size and risk to the bare minimum necessary to earn the management fees.