Don’t Forget Your Stop Loss Orders
The Cold Hard Facts?OK, let’s start with the cold hard facts – spread betting is, quite simply, trading in a tax free manner and, let’s not make any bones about it, trading is not easy.
If even revered traders like John Paulson (he of ‘The Greatest Trade Ever’ fame) who made billions shorting the US housing market in 2008 find it hard to make money at times… just think back to 2011 when his fund was down 50%.
If ‘great traders’ can rack up consistent losses then what hope is there for the rest of us?
That is not to say that profits cannot be made and hey, when they’re tax free, then the ‘carrot’ will tempt the best of us.
However, new spread bettors and CFD traders should be beware.
If you think this is a bump-free road to riches then you are in for a very rude shock…
There is already a plethora of books and websites out there with guidance on how to trade.
What you will read below is however, written by someone who has been an active spread bettor for over 10 years and has seen much of what the markets can throw at you.
It is easy to recite glibly ‘cut your losses and run your winners’ as if this will ferry you to the hallowed ground of assured profitability but, as any seasoned trader will tell you, it is not quite that simple.
Another much held mantra by so called stock market pundits is “you never go broke taking a profit”.
Well, let me give you a real example of how these so called ‘rules’ can actually work to your detriment.
Back in mid-2009 I bought quite a number of Gulf Keystone shares at around 10p a share and within a few days the stock had risen to 16p handing me a nice 60% profit – even more on the invested capital given the leveraged basis of the trade, and so I took the profit thinking what a clever chap I was.
The rest of course is history as the stock, at the last look, was a shade over 400p.
There are two aspects of this particular trade that are important to me when looking back and that is: