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Spread betting strategy update: This one is working PDF Print E-mail
Written by The Virgin Spreader   
Tuesday, 20 July 2010 10:02
This is a simple approach to financial spread betting that is working. Importantly I do have a good comprehension of the one big risk I face.

I have taken by spread betting account firmly into positive territory for the first time in what has been a rocky spread betting experience.

The spread betting strategy is simple:

1) Trade one product. Why? Because the more you watch the movements of one product the more 'in tune' you are with it.

I have been spread betting the Australian Dollar vs US Dollar pair.

2) Don't trade an index. I have dropped trading the FTSE 100. It moves far too much in anyone given day. This plays havoc with your stop loss settings, and requires greater margins. Greater margins mean I am forced to take on stakes that I am not comfortable with.

The AUD USD on the other hand is a pleasant product to be dealing with. For the fundamental trader the same principles that guide the FTSE 100 (risk appetite) are generally driving Australian Dollar demand. But - it is less volatile.

3) Set your stop loss at a distant yet safe level. Check your daily chart and find a level at which the rate is very unlikely to hit. Yes - you are going to risk a lot of capital, but, because you have set your stop loss at a level that has not been hit since last November you may not have to worry about it being reached on a 15 min chart trading strategy.

This ties in with point 2 - you can't really do this with the FTSE 100 because on a volatile day you could very well be stopped out.

4) Set your take profit level well within trading range. If you set your profit level at a point within a range that is likely to be breached (below resistance levels on a 15 min chart?) then your chances for closing at a profit are all the more likely.

I remember reading that if you set your profit level at double the distance to your stop loss then you will likely profit in the long run should your probability of winning and losing be 50%. Nonsense. If your stop loss is 50% closer your 50% win / loss rate is out the window.

5) Trade when the conditions are right. Important point this. I only enter the market when there is a good pattern in place and avoid getting involved just for the sake of being involved. This is a difficult discipline that I have had to master considering I am only concentrating on one product.

Yes dear spread betters, this strategy has really worked for me over the past month. I have pulled my account from 10% losses on my opening deposit to 5% profit.

The biggest risk I face though, and I am very aware of this, is a thunderbolt from the blue that sends the AUD USD plummeting.

But, by then I hope to have opened enough ground with the above strategy to minimise the impact such an eventuality would have on my account balance.

Last Updated on Tuesday, 03 August 2010 11:19
 

Spread Betting Lessons - Cut out the emotion!



Oh, and also a lesson why the Stop Loss is your Friend !