Small Spread Betting account and Strategy - advice for a new trader?

[LOK101]

Hi all,

New to the forum, fresh meat, so be gentle! I have read a fair amount on the various areas covered by the ‘trading umbrella’, but I still have a lot to learn. I have read most of the stickies’ on here, and practiced paper trading with a demo SB account for some time to get the feel of it, and figure how to actually place a trade. Predictably I did quite well on my demo account, which therefore encouraged me to open a live account with real money which I have subsequently not done so well on! So, I need to improve my strategy and have a re-think on my approach.

To begin with I have some basic questions first that will allow for simple straightforward answers. I haven’t been able to see clear cut answers on these so far, so I do apologise if they have been repeated:

1. Is Spread betting classed as ‘trading’ in the same way dealing with a conventional broker, and buying/selling shares on the open market is?
2. Is using an online SB platform a more risky way to approach trading, or would it be a better option to look at open market via a broker and buy / sell shares in the more traditional way?
3. What fundamental research can one do (if any) to facilitate a successful SB strategy, other than observing technical indicators and candlesticks, or is it not really worth doing (other than being aware of what’s happening in the news etc.)?
4. Leading on from above; Can you combine fundamental analysis with technical analysis to conduct and operate a successful strategy on a SB platform? (i.e. FTSE100)


To elaborate on the above, in a nutshell to save a long post; I wanted to start trading and have explored the various avenues available. I have opened a live SB account following several months successful trading via a demo account (which I might add, can lull you into a false sense of security!). Initially I was doing well, then it started to go bad. I am using a limited loss account in that I cannot lose more than my stake and I don’t want to borrow money or anything like that. I also ALWAYS trade using stop losses in place. The idea is to start small and grow the account gradually. I am under no illusions and have the patience and mind-set to approach it correctly (or so I think). However, I realise I need to improve my money and risk management skills. I explain below:

So, onto my problems! It isn’t the win loss ratio, it’s my profit ratio. I’ve exported the trades to a spreadsheet and examined them. To put it simply, I have had many more winning trades than losing ones, however, the value of my losing trades exceeds the cumulative value of my winning trades, therefore I have effectively screwed myself. I know I am going wrong but I am struggling to understand how to change my process. The issue I find is that I have been trying to keep it small and trade with small amounts, which normally means I have to close out the trade on a small win as soon as I start seeing profit, as normally it tends to reverse and either close me out on my stop, or if I adjust the stop thinking it’s going to pullback (which many times it has) it drops even further and I lose more money on that particular trade. Nobody likes losing let’s be honest, but I accept I need to improve on it, as odd as that may sound! I have tried the ‘ride your wins and close the losses’ strategy, but I normally find that the market reverses which effectively reduces the potential profit I could have achieved on a trade if I had closed it out when I deemed it to be an acceptable win. It’s a tricky process being able to identify how far one should place their stop from the entry point, whilst allowing the market to ‘breathe’ as it were. If I reverse my process meaning my losing trades are my winning ones, I would be sorted! That is despite the fact I have infinitely more winning trades than losing trades. I need to get back to the drawing board and re-establish / firm up my strategy before continuing, but would appreciate any advice or input available. I am enjoying it, but I also can appreciate the extreme stress it can cause when it goes t@ts up! I want to learn more though so please do let me know your thoughts, as well as providing decent advice as to how you think I can correct my strategy.

At the moment I am trying to keep it simple using moving averages to identify trends and directions. This was what was working for me previously. 10, 20, and 60, and then trying to enter a trade when I can see the crossover, or clearly identify when there is a strong up-trend or down-trend. I currently trade the 1min charts as have been using small amounts and taking small profits (but sadly the bigger loses too as described above). I also realise I have been over-trading, another reason why it’s gone wrong. So I can see a few reasons why I haven’t been doing well but I just need some guidance on my strategy.

So far I am thinking:

Improve my risk and money management skills
Trade a longer time frame perhaps (5 or 15min charts?)
Have set stop loses and do not move them even when losing
Trade less!
Accept losses / improve ability to accept and understand when I am wrong!

If you are able to provide advice and direction to facilitate the above, that would be excellent. Any help appreciated!

Thanks gents.

 

[jsc]

That's a lot of questions...

SB is what it is, for tax purposes it has certain advantages in the UK. SB is really not the best way to trade in a disciplined manner, although others will tell you differently. There is a reason most professional traders don't SB. There is also no such thing as a stop loss or a guaranteed stop loss but most people don't believe this. It simply prioritises your order as a guaranteed stop loss, it is no guarantee that will be the point precisely where you are filled. Check the law book if you missed 2008. Losses may exceed deposits.

CFD's mean you can use margin to trade shares, long or short. It is a great way to lose a lot of money really fast, but also a good way of trading a strategy if you have one.

You need to decide if you are day trading or in for the longer term. You need to decide what you are trading. You need to learn to chart for entry and exit points.

Stay out of the market at the moment as the Vix is almost at 2008 levels and you will get chopped to pieces as an amateur.

 

[tomorton]

1. Is Spread betting classed as ‘trading’ in the same way dealing with a conventional broker, and buying/selling shares on the open market is?
------- No its tax-free and you never actually own any assets, but from the point of view of mechanics and trading decisions its almost identical.

2. Is using an online SB platform a more risky way to approach trading, or would it be a better option to look at open market via a broker and buy / sell shares in the more traditional way?
------- No. Its leverage combined with lack of a consistent strategy (or the discipline to execute it) that is risky.

3. What fundamental research can one do (if any) to facilitate a successful SB strategy, other than observing technical indicators and candlesticks, or is it not really worth doing (other than being aware of what’s happening in the news etc.)?
------- For daytrading its TA only most of the time. Longer term, its worth looking at economic news so you're not trying to go long in a market the rest of the world is selling. Even for daytrading, there are certain events such as interest rate announcements, US non-farm payrolls that you must keep on youir calendar and maybe get out of the market before they come up.

4. Leading on from above; Can you combine fundamental analysis with technical analysis to conduct and operate a successful strategy on a SB platform? (i.e. FTSE100)
------- Yes


So far I am thinking:

Improve my risk and money management skills
------ Essential

Trade a longer time frame perhaps (5 or 15min charts?)
------- Going from 1min to 15mins is the same game. Going from intra-day to days or weeks is a game changer.

Have set stop loses and do not move them even when losing
------- Yes. The only way to lose the game is to get wiped out, and youir stops should avoid that.

Trade less!
------ Until you have a consistent strategy. Then trade more.

Accept losses / improve ability to accept and understand when I am wrong!
------ Yes, these are your education fees. At this stage you need to control losses, not grow profits, i.e. you need to stay in the game long enough to be good at it.

Onwards and upwards.

 

[peakoil]

Hi and welcome to the board. I could be considered an experienced spread better. And, in my own particular circumstances, spread betting happens to suit my needs and fulfil my expectations. But... YMMV!

In other words, I very much accept that spread betting may not be for everyone. Nonetheless, whether spread betting is right for you or not, is entirely up to your circumstances. That's, frankly, for you to figure out, and not for we strangers on forums, to work out for you. All the same, many people will tell you that spread betting is 'only gambling' and that so called 'real traders' don't spread bet, while they conveniently forget that financial spread betting started only as a way for so called 'real' traders to place bets on the side - which over the years, grew into the dynamic and ever evolving industry we see today. So it was with partial thanks to the needs of real traders that we even have a spread betting industry today. Make of that what you will.

Whether spread betting is pure gambling, or otherwise, it's now argued - entirely depends (much as you've mentioned) on your own approach, plan, discipline, attitudes, methods/techniques & patience but above all else - an openness to learn from *both* your successes AND your mistakes, so that you can truly develop your skills. Too many make the mistake of thinking that it's only their mistakes which they need to concentrate upon, whereas the reality is you can make a mistake yet *still* end up making money from doing so! It's financially dangerous, in the long run, when this happens (i.e., you profit from a mistake), and yet the beginner is unaware of such a hidden pitfall to his own development - believing that *every* time he profited, he must have had a correct plan in place - when that isn't necessarily the case - at all. Later on, he may be totally confused as to why a certain technique SEEMED to work before, yet now 'somehow' isn't working... Believe me, I now know that to be true.

However, please don't blame any losses on spread betting itself, not least because there is no evidence to suggest that alternative trading vehicles lead to materially higher levels of success. You may get greater 'kudos' from others, if you use a so called 'real trading platform', but for me, gambling does not have to mean wild stabs in the darkness either, and I don't believe that reasonably consistent winnings are impossible to someone with the right mindset, discipline etc., besides - does it matter to your pride if you're eventually considered, by your peers, as only a gambler who wins money more than you lose? IMO pride should have nothing to do with this, but others can see it differently.

Speaking of which, something akin to success can (and in my experience does) take many, many, many, many years of losses & learning. The Economist has reported a study undertaken by a certain business school (which I've repeatedly quoted previously) which has found that 4 in 5 persons consistently lose. To become one of the hallowed 'A Book', you need to be not just different from the rest - but consistently different from the rest. You must also learn not only when rules should be followed, but also when rules should be broken. IMO, it's only experience and, it's argued, a lot of experience, which will help you to tread upon that golden path...

All of which, should really be years away from now, even if you're destined for greatness, so in the meantime, whether you choose to continue spread betting, or use another method, to take on the markets, you must be repeatedly prepared, both to learn and to lose. I usually say that the best thing to do in your situation is to seek out someone who is one of the twenty percent, and ask if you can learn anything from him. Whatever you do, good luck!

 

[alexaherself]

1. Is Spread betting classed as ‘trading’ in the same way dealing with a conventional broker, and buying/selling shares on the open market is?

"Classed" by whom? It isn't, for example, by the UK tax authorities: it's classed by them as betting, and any profits made from it are therefore free from either income tax or capital gains tax.

2. Is using an online SB platform a more risky way to approach trading

Not in itself, no.

Whether it's "gambling" depends on the techniques and methods used by the person doing it, rather than on the fact that it happens to be spreadbetting. Someone who uses spreadbetting for a "gambling style of trading" is just as likely to use any other kind of trading in a "gambling style".

3. What fundamental research can one do (if any) to facilitate a successful SB strategy

Anything and everything one can do for an other kind of trading strategy. Again, the fact that it's SB isn't what makes any difference, here.

Can you combine fundamental analysis with technical analysis to conduct and operate a successful strategy on a SB platform? (i.e. FTSE100)

Yes - just as you can for using any other kind of trading platform.

I realise I need to improve my money and risk management skills.

Sounds like it. We've all been there, at some point.

I offer two book recommendations (especially the first of the two):-

Trade Your Way to Financial Freedom by Van K. Tharp

Beyond Technical Analysis by Tushar S. Chande

I have had many more winning trades than losing ones, however, the value of my losing trades exceeds the cumulative value of my winning trades

In the book above, Tharp explains why that's a likely outcome for some kinds of trading, and what to do about it. He explains why trend-following systems which have win-rates below 50% are often more likely to make overall profits. It seems a little bit counter-intuitive at first, but it's so.

I am trying to keep it simple using moving averages to identify trends and directions.

It can be a viable way of identifying trends, but it isn't a viable way of determining entry/exit parameters, in the long run. Systems based around this can easily look very attractive in the short term, but they're very, very dependent on market conditions.

trying to enter a trade when I can see the crossover

It's going to take a far more robust approach than that.

So far I am thinking:

Improve my risk and money management skills

Yes - that's probably the most important, and helpful, of all the things you've listed.

Trade a longer time frame perhaps (5 or 15min charts?)

If 5-minute charts are a longer time-frame than whatever you've been using, I'd definitely recommend it; yes. At the moment, what you're looking at is probably 90% "noise" and only 10% "signal". The reliability of a method is typically proportional to the length of the time-frame used to trade it.

And good luck!

 

[Jason101]

I would recommend you read this book.

http://www.amazon.co.uk/The-Financial-Spread-Betting-Handbook/dp/1897597932

As well as having sound trading principles it is a good book if your new to spreadbetting, the nuts and bolts of different types of bets, how to open, close and pyramid bets is covered well.

The author is not full of B.S promises either. He is honest that trading is a mountain to climb and most people will not make it.

 

[LOK101]

Thanks for all the advice so far gents it's much appreciated.

Ok, I will take a look at some of those books suggested above. I need to look at my strategy too and figure a way of realising entry and exit points. At present I have no real clear process for this. I was going by the ethos of just getting out when I had a small profit, and trying not be greedy with it, as that tends to backfire.

So another question (1) On the subject of regular stocks and shares, what are we thinking is the minimum amount of capital one should start with? I am sure it's a common question, but by minimum, I mean the minimum amount it's practically possible to deal with. It needs to be dispensable too in case it all goes pear shaped right?!

(2) Same question for a SB account. I started with £100 but have subsequently waxed 200 overall, and while relatively disposable, i'd rather not have lost any of it! However i know it was due to stupidity and bad Technique so am confident that I will not repeat these mistakes. What's that old Chinese proverb, definition of madness is doing the same thing twice and expecting different results?

I wonder whether dealing in small amounts presents a problem in terms of stop losses and small profits. what's the minimum amount one can practically use to begin trading a SB account, taking into account the market and its ability to be volatile? I understand the point of not risking more than 2% of your account on any open trade, but when it's £200 that is essentially £4 capital to work with which I am thinking may be a hinderance - what do we reckon?

 

[MajorMagnuM]

Small timeframes are not noise

 

[LOK101]

How do you identify those triangles I have seen those mentioned before as a good strategy.

 

[LOK101]

That chart looks great. However the difficult thing is entering at the correct point when it's in realtime. And also measuring points of support and resistance in order to ensure that you know it won't go lower than a point previously identified.

 

[MajorMagnuM]

How do you identify those triangles I have seen those mentioned before as a good strategy.

the triangles are just marking wave points

 

[MajorMagnuM]

That chart looks great. However the difficult thing is entering at the correct point when it's in realtime. And also measuring points of support and resistance in order to ensure that you know it won't go lower than a point previously identified.

as you can see s/r works on many " timeframes"

 

[jsc]

IN truth, spreadbetting a weighted index like the FTSE 100 and claiming its all about entry and exit points is the first mistake most people make once they have learnt to chart properly. Charting was developed as way to assist with timing for stocks that had been researched, not dicking about in 2 minute and 5 minute and 10 minute time frames on a weighted index being driven up and down by the latest headline or rumour like a pissed up motorcyclist. Trading is about developing a strategy that means you gain more than you lose consistently in a disciplined and organised way, not trying to pounce on the latest 3 minute stochastic cycle and punching the sky because you have skimmed a few quid off a trendline on an index. You need a system and a strategy. Any good technical trader will tell you a market full of noise is a market to avoid. Amateurs will leap on the back of a news story, like 'Greece Crisis Resolved', make a few quid on the bounce and pat themselves on the back. A good trader however, will already have planned for both outcomes for Greece, positive or negative, and have a strategy in place to make money either way, probably using Options for leverage. That's just one example of the difference between a pro and an amateur. One reacts, one plans ahead.

 

[NVP]

hey dude

first of all I would declutter your issues/questions list......until you can make regular profits a lot of these issues are irrelevant

focus on finding your edge ..this will take a long time and always does ...........until you achieve that stage in your trading you will continue to b/e at best..........I would read extensively about trading , traders traders styles and sample whats out there to see what fit your personality and needs

unless you spread the net and research how do you know what to do ?

with research and perseverance and a lot of effort / time you will find it ..................we can offer suggestions on what to research.....but we cant find your edge for you ..............only you can !

N

 

[NVP]

Any good technical trader will tell you a market full of noise is a market to avoid. Amateurs will leap on the back of a news story, like 'Greece Crisis Resolved', make a few quid on the bounce and pat themselves on the back. A good trader however, will already have planned for both outcomes for Greece, positive or negative, and have a strategy in place to make money either way, probably using Options for leverage. That's just one example of the difference between a pro and an amateur. One reacts, one plans ahead.

 

[sharesr4us]

Hi Lok101,

Welcome to a great forum. A few pointers....from a beginner like myself (Expert traders please correct me if I advise wrong!):-

1. You've got to be patient and remember to work on your psychology. One of the things I've learnt from past failures is that one cannot let his/her emotions get in the way when the trading - one cannot panic, otherwise your doomed to fail. Truth said, I still sometimes let me emotions get in the way, but slowly I'm working on them and trying to keep a cool, calm mindset.

2. I personally think that you have opened a live account prematurely and should have continued trading using demo accounts for a longer time...maybe leave your live account alone for now and go back to demo accounts...play about and see what strategies you can come up with...

3. You need to have an entry, exit strategy all the time in the event of a loss/profit.

4. You can't get too greedy when making profits and need to have a plan in place of how you would exit the trade.

5. Be prepared to lose as no trader is perfect and even the best will always make losses.

6. Don't throw your life-savings away - ONLY trade what you think as extra cash and won't lose sleep over it, as you could lose the whole lot.

Ask away any questions as there are some great members on this forum whom want to help.

I hope this helps.

 

[CityTrader]

Trade small
Trade your gut instincts.
Read the papers, watch financial news channels.
Get a feeling for sentiment
Do NOT get sucked in by the bulletin board bull****ters
Don't follow tips
Don't ask other people what they think
Don't overtrade.
Expect to lose at first. ( read through as trade small!)

 

[luckystrike23]

Regarding psychology those interviews might help:

Interview with Mark Fenton-O'Creevy, Professor - Emotional Finance https://www.youtube.com/playlist?list=PLnSelbHUB6GS5HekZEa42ICGqLKOgdG2K

Interviewing Steven Goldstein, a Trader Development Consultant and Performance Coach https://www.youtube.com/playlist?list=PLnSelbHUB6GRO-0QsviB19NnUfwcl7_lj

 

[remme001]

There is a reason most professional traders don't SB.

Yes and it's simply because they will be liable to pay tax if it is their main source of income in which case the advantages of spread betting become completely redundant because it is not beneficial to this type of trader.

There is also no such thing as a stop loss or a guaranteed stop loss but most people don't believe this.

Guaranteed stops are typically backed by insurance by the broker meaning if for whatever reason they failed to close your position at a specified price the difference between the price in which your order was executed and the stop loss you had set will be covered by the insurer or broker instead of the client. You normally have to pay a premium because of this.

 

[jsc]

Yes and it's simply because they will be liable to pay tax if it is their main source of income in which case the advantages of spread betting become completely redundant because it is not beneficial to this type of trader.


Guaranteed stops are typically backed by insurance by the broker meaning if for whatever reason they failed to close your position at a specified price the difference between the price in which your order was executed and the stop loss you had set will be covered by the insurer or broker instead of the client. You normally have to pay a premium because of this.

I don't think I need educating thank you. I was the broker.