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Question: What are your views on technical analysis? [- John]

Trader’s response: Hi John, here are my views on guns! In the right hands they can be an effective tool for law enforcement and defence while in the wrong hands they are tools for death and destruction.

My views on technical analysis are not too dissimilar!

Most things that pass as technical analysis are gobbledegook and unfortunately technical analysts tend to only come in extremes: the overwhelming majority (especially the ones you come across in the media) are dangerous to your wealth while the tiny minority of excellent ones are not widely known to the investing public.

Question: I have recently opened a spread betting account with an initial capital of £3000. How much do you think is reasonable to bet on each trade? [- Lesley]

Trader’s response: Hi Lesley, I bet you have received a similar response to the one that I'm about to give but I will repeat it here anyway since I consider this to be a very important issue.

While I cannot tell you what to do with your own money, you need to ensure that you do not risk more than you can afford to lose. However, what most people do not realise is that while you may have enough money in your account to sustain a loss, you may not necessarily be emotionally or mentally prepared for such a loss. For instance, while you may have enough money to accept a loss of say £800, for most people, losing such an amount of money in a couple of hours in a bad trade is not easy to deal with emotionally.

Determine what your pain threshold is and set your bet size correspondingly to ensure that you are both financially and emotionally comfortable with any losses that you may suffer. Even I always use a guaranteed stoploss as that ensures that I never lose more than I have already predetermined as my limit.

Question: What attributes are necessary for success in trading and financial spread betting? Also, do you think that there are any traits that could hinder success? [- Alex]

Trader’s response: Hello Alex, indeed some of the emotions that we have developed for survival in everyday life are actually counterproductive and potentially dangerous in the trading / spread betting arena.

Take for instance, 'hope'. For many people, hope is a powerful emotion in dealing with life’s ups and downs. However, the same emotion can be disastrous if applied to trading the financial markets.

Consider a case when you have made a decision and taken a trade which then turns sour and your stop loss level is triggered. Strict trading discipline would demand that you exit the trade without question in order to preserve your capital (a good reason to use guaranteed stops so that you’re taken out of position once the stop limit is hit). However, I have known many people—even highly skilled professional traders—in such situation who then decide to stay in the position in the hope that things would somehow work out fine. The problem is that most often, they don’t. In fact, the few instances when you luck out and things work out just fine only serve to reinforce this potentially dangerous habit.

This brings me to another emotion that is probably a prerequisite for success in financial spread betting and wider trading and investing: discipline. I touched on this briefly above. Basically, by discipline, I simply mean the ability and courage to stick to a predetermined trading plan. Probably the best advice I could offer any spread bet trader is to have a game plan and stick to it.

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