Making money from financial spread betting is a reality if you follow a system or indeed somebody that actually makes a living from the markets.
So why do only around 10% of traders make a profit long term?
It’s often quoted that 90% of all Financial Spread Betting and FX accounts do not make money. From my research this figure also stands true for most retail stockbroking accounts, so it’s not just financial spread betting. It’s also said that 90% of professional money managers do not beat an index fund.
So what separates the 10% winners from the 90% that lose? Well it’s not rocket science… Regardless of whether you’re using Spread Betting, CFDs or buying and selling shares via an online broker; it’s important to treat trading and investing as a business and not recreational fun.
The winning traders have a system (which does not need to be complicated) but it must have a defined way to get in and out of a trades.
It’s also important to realise that many of your trades will not be successful and that is just part of the business.
What is important is to limit the losses on those trades and remember the saying cut your losses and let your profits run. Don’t be another mug punter and let one trade hammer your bank because you can’t take a loss.
I have found over my 30 years of trading and investing that we can learn as much from losing traders as winning ones, if we can identify the patterns of a losing trader and then ensure that we do not do the same then we will be successful.
Trend following Financial Trading System
Trend following is an investment or trading strategy which takes advantage of longer term rising or falling prices (short trading). Traders who employ a trend following strategy do not aim to forecast or predict specific price levels; they simply get on the trend and ride it until at some stage that trend starts to reverse. A market “trend” is a tendency of a financial market price to move in a particular direction over time. It can sometimes we call momentum trading.
If there is a turn contrary to the trend, we exit and wait until the turn establishes itself as a trend in the opposite direction. Trend following can be used by smaller traders using Exchange Traded Funds, Financial Spread Betting, CFDs and FX accounts.
Whilst Trend following tends to be associated with the commodities market the system can be used on shares, Fx, Stock indices and commodities. Trend following is ideal for those that don’t want to be watching prices all day.
Most of my money is made following the trend; and I have consistently made money doing so for 30 years. My financial trading course is trend trading in nature.
Trend trading can be applied at your financial bookmaker with big advantages… Financial Spread Betting firms give you the opportunity to gain exposure to the performance of key markets… but without having to put up the full value of the transaction; as you’re trading on margin you can also profit from falling markets which is not easy to do via a traditional stockbroker.
It’s also incredibly easy to place a trade at a financial bookmaker. You can see how it is done in this video of me placing a trade at the popular ig-index
What losing traders do and how to avoid joining them!
So if you follow the trend in the markets and avoid these losing trader mistakes that I’m about to tell you about, you are already laying some pretty solid foundations.
Many traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they over trade and use their equity to the limit (are undercapitalised), which puts them in a squeeze and forces them to liquidate positions. Usually, they liquidate the good trades and keep the bad ones.
Many traders don’t realise the news they hear and read has, in many cases, already been discounted by the market. Often, new traders jump into a market based on a story in the morning paper; the market many times has already discounted the information.
After several profitable trades, many speculators become wild and un-conservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
They fail to predefine risk, add to a losing position, and fail to use stops.
They frequently have a directional bias; for example, always wanting to be long. A good trader should be happy to trade up or down.
Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake.
They over trade. Many new traders after opening a Financial Spread betting account are like a child with a new toy. They want to trade anything and everything. The new internet dealing offered by most bookmakers has made it even worse.
Many traders can’t (or don’t) take the small losses. They often stick with a losing trade until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system. If you are following charts and a trendline or moving average is broken, you must stick to your rules.
Many traders break a cardinal rule: “Cut losses short. Let profits run.” Emotion makes many traders hold a losing trade too long. Many traders don’t discipline themselves to take small losses and big gains.
OK, so you’ve got a good idea of how things work in financial spread betting and how to not become another losing trader… but how do you know what positions to take in the first place? What shares and stocks should you be buying?
Don’t panic, I’ve got that covered for you. You can increase your chances of opening profitable longer term positions by following some simple guidelines.
Remember though, you may get lots of small losses that you cut quickly and then you get that winning trade that just seems to keep going. This is where the big profits are made.
Here are my fool proof tips to buying profitable shares.
Buy strength, sell weakness
Everyone likes a bargain. It’s human nature! But here’s the truth: you don’t make money from buying bargains.
Cheap stocks often appear to be bargains after a large drop, but they often continue to fall. Buy break outs and sell them higher. Sell shares that are breaking down. Never let anyone tell you they are cheap and can’t go any lower!
Trade active stocks
Many newcomers don’t realise that while you have thousands of companies quoted on the stock market both in the UK and US, most of these stocks don’t move much.
If you look at the daily volume of share traded on many companies you, will see that nothing has been traded. Always trade active shares with volume, and sectors that are active or trending well.
You can use my website or software like sharescope to filter out these opportunities and safe yourself time. You can also list all companies that are 20 days or less from their all-time lows or highs.
Spreads are the tightest on the most active shares such as Vodafone, BP, Unilever, BT, and GlaxoSmithKline.
Look at shares as if they are people
Stocks often act like people. Each has its own personality. What’s more, a stock can change from one to another quickly. Like people, stocks can be steady, predictable plodders or aggressive and unpredictably. Charts and moving averages can help you spot the personalities which you can trade. On the whole we like quiet and trending stocks.
Trade the trend
As I’ve already said, trade the trend. Don’t try to be smart and pick the top or bottoms, just trade with the trend. Of course the trend will never last forever, but by using a trailing stop you can lock in profits along the way. With Financial spread betting, options, CFDs and Futures we can as easily go “short” and profit from falling markets.
Add to winning trades never add to a losing trade
You’ll sometimes hear so-called experts advocate averaging down. Don’t listen! Never add to a losing trade. Instead, add to winning trades. If you buy £1 and the stock goes to £1.50, buy some more.
For long-term investments of five to ten years, buying units on a monthly average price may make sense, but never average down shorter term trades.
If the trade is wrong, cut it!
Your first loss is normally the smallest. If you were expecting something to happen and it doesn’t, simply cut it. Also, if you have a stop set and the share is heading towards it, don’t move your stop unless you have a very good reason to.
For example: if you start with £1,000 and you lose 20%, you are left with £800. You now need to make 25% to get back to £1,000.
If you let a trade move 50% against you, you will now need to gain 100% to get back to £1,000.
If you can’t see a trend then don’t trade
Markets and shares don’t always trend. In many cases a share could consolidate for weeks, months and years. Vince Stanzione likes to trade trends, and if something is not trending he recommends walking away. Come back when it starts to trend.
Let the winners run
For many, holding a winning trade is as painful as holding a losing one. The only way you can survive is to let winners run more than you let losers run.
If you have a plant in your garden and it is growing well and strong, you don’t dig it up and kill it. So, don’t do the same with your healthy trades. The majority do of traders do exactly this. As a broker, Vince Stanzione saw it all the time. He says clients often wanted him to sell their winning stocks, and keep their losing stocks!
Use a trailing stop to lock in profits. If you really find it hard to let a winning trade run then part close the trade and run the rest.
Keep it simple… Always!
You don’t need to make things complicated to make money from financial spread betting. The money is made in the waiting. Traders that keep things simple, have an exit strategy and can be patient will largely find themselves in with the 10% of winning traders.
If you think making a living from trading is like you see in the films, then think again. In reality it couldn’t be further from the truth.
You can also watch this video to learn more about financial spread betting and trading using the Vince Stanzione Course
Forget trying to find a shortcut
If you are serious about making money from financial trading, invest some time in yourself to do so. Read all that you can from the people that have and do really make money from the markets. Watch YouTube videos about them. And even ask them questions directly.
What you don’t want to do is fall into the trap of buying into hype and unproven systems.
With all the labour saving devices, computers, mobile phones and the various “time saving” gadgets why is it that most people never have any time or are always in such a rush?
In a society which continues to strive for instant, quick, real time, disposable and easy goods and services it comes as a shock to many that I continue to make massive profits from taking a longer term view and a rather simple trend trading approach.
When the Dow Jones Index was first calculated in 1896 it was disseminated once a day at the close.
In 1923 the price was released every hour and in 1963 the price went real time. Today we have a 24 hour price thanks to Globex, Financial Bookmakers and the Indicative Dow quoted in Germany.
Many still think that the switch in 1923 to hourly prices helped to fuel the 1929 crash.
While progress and technology should be embraced in many cases understand that quicker is not always better, microwave food may be quick and easy but does it taste that good?
Daily prices and weekly charts still work best. For my own trading 99% of my trading ideas come to me at the weekend when everything is shut.
A good tip to make money in any financial market is work on the “less is more” principle. Sometimes the best trades are the ones you don’t make.
Right now I am seeing lots of people rushing in to FX or Forex Trading thinking that its “easy money” I assure you it’s not and most of these robot software systems are nothing but random generated trades.
You can read more about my financial spread betting course here or feel free to contact me here [I try to respond within 48 hours in most cases].