Ten (10) spread betting mistakes to avoid

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Eliminating spread betting mistakes

While it goes without saying that trading mistakes are part and parcel of becoming a seasoned trader, a common trait among successful traders is that they tend not to repeat the same mistakes. In the trading game, that is crucial since errors have a direct impact on the bottom-line.

Here are a number of basic—albeit common—mistakes that many spread bet traders make. Minimising these (ideally, eliminating them altogether) would go a long way in helping you through the learning curve involved in becoming a successful short term trader or spread better.

Spread betting mistake(1)
Herding behaviour: aka trading with the crowd. Know why you’re in a trading position. The fact that your friend holds shares in company X is not a reasonable basis for doing so.

Spread betting mistake(2)
Information overload: or listening to too many talking heads. Learn to tell the difference between those commentators who talk/write because they are paid to talk as journalists and those who actually know what they are talking about. Likewise, there are scores of websites on financial spread betting yet a couple of minutes on most of them would quickly tell you that they are worse than junk! Most of them simply substitute quantity for quality. Don’t take my word for it, do a quick google search and see what the cat drags in! Avoid web clutter.

Hoping that losses would turn around:either learn to cut your losses and move on or risk losing your shirt! See mistake number 7!

Failure to really understanding risk: risk encompasses position sizing, correlation across positions held, loss tolerance limits, stop loss levels etc. Each facet must be well understood. If you don’t understand the risk in your trading, then how can you expect to ever control it?

Not having concrete investment objectives:know what it is that you’re trying to achieve. However, stating that you want to earn 10% return per month is foolhardy if you haven’t a clue how to trade effectively in the first place. See mistake number 8 below!

Spread betting mistake(6)
Trading without a plan: have a road map. Know what to look for in order to initiate trading positions, how to manage open positions and how to exit

Spread betting mistake(7)
Not using stop losses:you, my friend, are a gambler—not a trader! Many erroneously state that the instinct of a gambler are similar to those of a spreadbetter. WRONG! Astute short term traders aim to take calculated risks. Risk mitigation is the name of the game if you intend to remain in the trading game for any decent period of time.

Spread betting mistakes(8)
Irrational expectations: OK, I don’t want to call you stupid …but don’t expect to become a stockmarket millionaire simply because that advert in the newspaper said so!

Spread betting mistakes(9)
Trying to pick exact market tops and bottoms:who do you think you are? Look through the market analysis that I present in Spread Betting Opportunities and you will quickly notice that I use price ranges rather than single spot estimates when stating price targets and important support and resistance areas. You don’t need 20-20 foresight to trade successfully—which is just as well, since no one has such foresight!

Spread betting mistakes(10)
Overtrading: this takes a number of forms. Some novice traders trade too frequently with many going down the route of day trading oblivious to the fact that most day traders are simply market feeders, supplying the easy money for seasoned traders. Others spread themselves too thin by covering too many markets, becoming the proverbial Jack of all trades…master of none! Focus on a handful of core markets and learn to adapt your trading style to these markets.

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