Dear Trader: ask the expert





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Question: Dear Trader, I've subscribed to Spread Betting Opportunities and I’m earnestly looking forward to your next edition. Could you please explain with example the techniques that determine whether go LONG or SHORT. [– Ike]

Trader's response: Explaining with the aid of examples would require a lot more space than this section of the site allows. Moreover, there are numerous ways of identifying trading opportunities. In fact, you could talk to many successful traders and find that each one uses a totally different approach for identifying trades. The ideal situation is to find an approach that works for you (given you capital, investment horizon and personality/temperament) and learn to master that approach. This can be fundamental analysis, technical analysis or a combination of various elements of these two main forms of analysis.

I use a unique combination of practical technical tools and thorough analysis of investor sentiment with a fundamental economic overlay. The key is getting these three crucial areas right: opportunity assessment, money management and trade management.


Question: Dear Trader, Thanks for the site. I am new to spread betting. Is it profitable to open and close bets on FTSE/Dow indices on a daily basis and be profitable? If yes, what sort of daily points can I reasonably expect to make. [– Raj]

Trader’s response: Hello Raj, the answer is yes...but!

Taking the Dow, the daily trading range tends to be quite wide. In theory, this would suggest that one could simply buy near the intra-day low and exit new the high for the day (or the reverse for short positions). In fact, some of my most profitable trades have been opened and closed during the same trading session.

However, for most spread betters, setting out from the start as a day trader is almost guaranteed to result in losses. The profitable day trader is probably the rarest of all breeds in the market!


Question: I am very interested in spread betting but do not have an idea on how to start. What is the minimum capital I can start with? [– David]

Trader’s response: This is a very common question. I will consider the question from the perspective of a small private investor. This is because the sort of capital that most professional traders would consider as bare minimum is way beyond what most spread betters have access to! So here goes…

While the question seems fairly straight forward, the answer, I’m afraid, is not! In my view, the correct answer is dependent on two key factors: the skill level of the individual trader and the markets that you are involved in.

1. Skill level: while some traders may be able to trade comfortably with small initial capital, that is not ideal for most people who invest in the stock market. Of course, like you, I have also seen those adverts that claim that you can become financially free in 18 months starting from £500 or something similarly ridiculous (some even say from debt to millionaire status – but you get the gist!). Bottom-line is that a spread better that actually knows what he/she is doing could cope with a starting capital that allows ample room for market volatility. On the flip-side, no amount of capital will be large enough to prevent a trader from losing all his money if he does not really know what he is doing

2. Choice of market: the extent of volatility varies by market. The more volatile the market, the larger the ideal amount of trading capital that would be required for long-term success.

Having said all these, if you really do not have an idea where to start, then focus on understanding the basics first before considering issues such as required amount of capital. The essential elements of financial spread betting are discussed in detail on this site.


Question: Dear Trader, what do you think about setting targets each month, say 100 points to start and then build up the points target using the same stake until the pot increases. Do you think this could stop me getting emotionally attached and keep me focused? What’s your system? [– Stefan]

Trader’s response: I know many traders who do this. Essentially, you set yourself a profit target (in this case, measured in number of points gained). I think it’s a good idea to reduce the emotional involvement in trading. Measuring performance/outcome in points helps to do this as it removes the emphasis on money which is what you get when you set targets in nominal cash terms such as say a certain amount of pounds per month for instance. If you can make 100 points per month consistently, then at least you know that the nominal cash profit that you make simply boils down to your bet size.

However, while setting profit targets may have motivational benefits, it could also cause a trader to deviate from the disciplined approach that I adopt. Ideally, one should trade with the market. Your analysis leads you to a decision about the impending direction. Setting targets imposes an expectation of a certain magnitude for that impending move. Through diligent analysis, I anticipate market direction. However, although I always have expectations of how far a move could go, I let the market decide how far it wants to go.

A clear example occurred recently. A while ago, I forecast a move lower in the Cable ($/£). The pound was then trading at 1.9711 and a couple of sessions later it dropped to 1.9570 just like I anticipated. That was a move of 141 points. Following that move however, it reversed sharply. Now, if I had set a mental target of say 200 points I could have inadvertently ignored all the warning signs that the move lower was over and could have stayed short as the market moved higher : (

So, in my view, having targets can be good so long as a trader always listens to the markets. In my experience, the market almost always tips its hand. Spread betters just have to learn to read the signs.

Regarding the second part of your question about my trading system, quite a lot of readers have asked the same. I will put together a series of articles and e-books detailing my approach to analysing and trading the financial markets. These would be posted on this website shortly.


Question: Hello Trader, first of all thank you for your site, it is by far the most useful I have found. I am thinking about spread betting, after doing some research I am still undecided as to whether I should purchase some trading software, what is your view? [- Steve]

Trader’s response: Hi Steve, thanks a lot for your comments. They are very much appreciated. I am glad that you find this site so useful.

Yours is also quite a common question. My view is simple: DON'T!

There are indeed tons of trading software out there that you can spend your money on but practically all are black-box systems that spit out instructions without any analysis or rationale. This means that there is little ground for you to develop confidence in the system - and confidence in your approach is what takes you through those periods when you suffer trading losses.

Instead, concentrate on mastering the basics. By all means, start with the articles on this site and study the market analysis presented in the Spread Betting Opportunities. Trading softwares offer the prospect of quick money with little application or effort on the part of the user but, contrary to what many 'free evening seminar' salesmen would have you believe, trading or financial spread betting is no 'get rich quick' scheme. Success in trading requires application and dedication to studying the markets. It does take time but hopefully, with the aid of useful resources such as spreadbettrader.co.uk, you will get there much quicker than would otherwise be the case.




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