Spread Betting Winners vs Losers – what’s the difference?

By Malcolm Pryor, an active spread bettor, a trading coach and the author of “The Financial Spread Betting Handbook” (Harriman House, 2007) and "Winning Spread Betting Strategies" (Harriman House, 2009).
This article is taken from the Investor's Guide to Spread Betting. Download your free copy here.

There is no doubt that some people do very well spread betting. Others then think that it is an easy game, that all you have to do is open an account and the money will come rolling in. The reality is that like most other activities in life there are good ways and bad ways to set about spread betting, and generally the winners have put effort into learning relevant skills which enable them to be successful at it.

This is one of the central themes of my first book “The Financial Spread Betting Handbook”. In it I use the analogy of mountain climbing to try to cast light on the route to successful spread betting. The first stage is to get to base camp. For the spread bettor this translates to a range of activities including:

  • selecting a spread betting firm
  • setting up an account
  • getting all the right resources including software, hardware, data feeds and other information
  • becoming thoroughly familiar with all operational aspects of spread betting, including all the different order types, and when to use each type
  • acquiring street wisdom, learning to avoid common pitfalls

The second stage is climbing the mountain. For the spread bettor this means:

  • finding suitable strategies to use in spread betting. These could be trend following, counter trend, day trading or strategies which don’t depend on overall market direction, for instance pairs trading
  • learning techniques to time entry into and exit from bets
  • learning how to determine bet size
  • choosing which instruments to trade.

The final stage is reaching the summit. For the spread bettor this means:

  • matching strategies to individual preferences and objectives
  • planning and record keeping
  • reviewing performance and adapting
  • risk management and discipline
  • developing a winning attitude, continual development.

There are ten areas in particular which really differentiate the winners from the losers.

1. In control

A winning spread bettor has a plan for every trade, and trades in line with the plan. Losing spread bettors tend to pick trades on a whim. A simple test here is, could you explain why you have taken each trade to someone who doesn’t trade so they could understand the gist of it?

2. Responsible for results

Winning spread bettors have the mind set that whether they win or lose depends on them. Losing spread bettors tend to look to blame everyone except themselves for their losses. One common scenario for a loser is to take a trade based on another person’s advice, then blame the advisor if it doesn’t work out. The advice may come from a book, a magazine, a newspaper, a website, an internet chat room, or a broker. By the time a winner takes a trade it is their own trade, irrespective of where the idea for it may have originally come from.

3. In tune with markets

Whatever your time frame, there is a bigger picture to be aware of in a higher timeframe. If you are a day trader trading off 10 minute charts you should be aware of what the 30 minute or hourly charts look like. If your trading decisions are based on daily charts you should be aware of what the weekly charts look like. Winners are aware of the bigger picture and make trading decisions in line with them. Losers ignore the bigger picture, and are generally not in tune with the markets. A classic example of not being in tune with the markets were the losing spread bettors who kept on placing up bets during the powerful market declines in mid 2008.

4. Having an edge

Winning spread bettors have a methodology that suits them which, in the long run, should be net profitable. Losers don’t. If you don’t know what your edge is you probably haven’t got one. Typically losers either have no system, have a system which will in the long run lose, or are not aware that they need a system. A roulette player is a good example of someone with no edge. In the long run they will lose because of the house advantage, the odds are stacked against them. A winning spread bettor’s system will at the very minimum define rules covering:

  • when to enter a bet
  • how to determine bet size
  • when to exit a bet at a loss
  • when to exit a bet at a profit.

5. Using methods that suit you

Winners do, losers don’t. Considerations here include objectives, personality, beliefs, attitude to risk and available resources including time. Suppose for instance that you are trading a trend following system. One approach is to wait for a temporary halt or pullback in the trend before entering. This enables stop levels and risk to be predetermined with clarity. However, sometimes a pullback is the start of a major correction, so this style of entering a trend is only suitable for people with excellent discipline who will get out promptly if the stop is hit.

6. Understand the risks rewards and odds of your methods

Again, winners do, losers don’t. A winner will be able to say that over 100 trades he will expect X winners and Y losers, and that the average size of a winner will be Z times the average size of a loser. Note that there are many successful configurations of these figures. Each of these three configurations produces the same net outcome:

  • win 75% of the time, average winner same as average loser
  • win 50% of the time, average winner twice average loser
  • win 25% of the time, average winner 5 times average loser

7. Bet size

Winners have an appropriate bet size for their strategies and for their objectives. Losers don’t (and this is one of most common causes of failure). One commonly used benchmark is keep bet size to a level where if the bet is a loser you only lose a maximum of 1% of your spread betting funds.

8. Focus on exits

Winners spend as much time designing exit strategies as designing entry strategies. Losers don’t. Design considerations include where to place the initial stop, and then whether (and how) to move it if the bet moves in your favour. There are a wide range of technical analysis tools which can be used here.

9. Written plans and rules

Winners, in contrast with losers, usually have fully documented plans including trading systems and rules, budgets and targets, contingency plans. On a day by day basis potential trades are planned in advance (and usually documented) before the trading day starts.

10. Monitoring performance

Winners do, losers don’t. On a daily basis ask, what went well, what went badly, did I make any mistakes, if so what can I learn?

On a periodic basis, e.g. monthly, look at the trading results and compare them to the budget / what you expect. Is the system on track? Does it need updating? How have I operated it? How can I operate it better in the future?

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