Three mistakes new spread betters should avoid
Many traders have come to realise that even the best trading strategy with the wrong mindset can deliver poor results. So, how can you develop the right mindset? Tim Bennett has three hints.
"Many traders have come to realise that even the best trading strategy with the wrong mindset can deliver poor results," says Sandy Jadeja of spread betting provider City Index. So, how can you develop the right mindset? Here are three hints.
Don't anchor. In the absence of any other clear buy or sell signal, it's easy to get lulled into creating them out of thin air. So, a trader might say "I'll close out when the share hits £3" or "I will buy the index when it hits 5,000 points". These round number targets might make you feel as though you have a trading system when actually you are plucking decisions out of thin air. Equally, don't get hung up on the price you open a bet at if it will stop you applying your own stop loss rules. "If I just wait a little longer, I will be back to break-even" isn't a strategy it's just wishful thinking and may even lead you into bigger losses. In short, pick a stop loss price and stick to it.
Next, don't become a slave to opinion. As psyfitec.com notes, we all have a tendency to put too much faith in the opinions of those in a position of influence. So, we tend to rely heavily on company reports, analyst opinions and investment gurus without recognising that they may be "as mentally hamstrung as we are". As a spread better, you need to develop a healthy skepticism and decide for yourself. As the old investing adage says, no-one rings a bell at the top of the market".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Equally, it can be tempting to heed the siren calls of the many brokers in the industry that make money when you trade, when, actually, the best option is to do nothing.
Thirdly, don't get carried away. Spread betting is competitive and many retail investors lose money doing it. So decide which index, commodity or currency pair you are going to focus on and do your homework. Too much of a scattergun approach may be more fun but won't make you any money. Then decide how much you are prepared to lose on a bet and pick your bet size and stop loss points accordingly. Never throw caution to the wind hunting the "trade of the decade" or any similar sounding short cut to riches. Chances are what was a winning trade yesterday won't work today!
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
-
NS&I slashes rate on British Savings Bonds – are they worth it?
The latest announcement from NS&I follows hot on the heels of a reduction to the Premium Bond prize rate last week
By Katie Williams Published
-
NatWest boss says a return to full private ownership expected next year
The UK Treasury's stake in NatWest has fallen to below 11% - here is what it means for the share price
By Chris Newlands Published