Today we’re going to look at the importance of having and following a spread betting system in order to ensure that we catch the big winning trades. We’re going to look at a real world example to illustrate the importance on this and how not following a system negatively affected one of the world’s top traders. In our last post on Stanley Druckenmiller, we commented that Druckenmiller had decided to close his hedge fund due his inability to make outsized returns over the past 3 years which he put down to very unfavourable market conditions.

One of the factors that have negatively impacted his performance this year is that, by his own admission, he missed the move in treasuries. Since treasuries have been the biggest and best trending markets this year that has been a fatal mistake. This does highlight a very important lesson for traders and that is that you must have a trading system, or in our case a spread betting system with specific trading rules and the discipline to follow it consistently.

A good spread betting system should include each of the following:

• Which markets to trade
• When to enter a trade
• When to exit a trade
• How much to stake on each trade
• How to know when to stay out of a market

Once you have a spread betting system that incorporates the above rules, all you have to do is follow it consistently. My guess is that either Druckenmiller was relying on discretionary reasons for entering trades rather than specific rules, or his system indicated an entry but he chose to skip the trades because he did not like them for some reason.

This is in fact where many traders fall down and the mistake can be fatal, as seen by the negative impact that skipping these trades has had not just on Druckenmiller’s performance, but on him emotionally as well and these factors may have led to him calling it a day.

In reality, nobody can be sure when entering a trade whether it will be successful or not and this is why once you have a spread betting system it is important that it is followed consistently. One can never tell in advance when the big moves are going to come and if you skip a trade for any reason and it goes on to be a big trend and a big winner you are in trouble.

One of the underlying principles of successful trading is that it is always better to risk taking a small loss than it is to risk missing a big winning trade. If the spread betting system used is good then only a small percentage of trading capital should be used for each trade, for example 2%.

If one is only risking 2% equity per trade then taking a loss of that amount is not too painful. Conversely, if a trader misses a trade that goes on to be for example a 10 to 1 winner, as may be the case in the current treasury trades then that equates to 10 x 2% of missed opportunity. That is far worse than risking the initial 2% loss. It is compounded if there are a handful of correlated markets such as in the case of treasuries, the 5 year note, 10 year note and 30 year T bond. Missing out on one trade is bad but missing out on all three is fatal. That is why we say it is always better to risk a small loss than it is to risk missing a big winning trade.

Because the markets only trend around 40% of the time all trend following systems will have more losing trades than winning trades. Therefore to make money you must have the big winning trades and ensure that you catch them when they come. If you don’t, you have no way to pay for the losing trades. This is why you must have specific rules to enter trades and rules to ensure that you don’t miss any trades.

Our spread betting systems, whether it is our forex system or our primary financial spread betting system for multiple market sectors both include rules to ensure that big trends are not missed and that trades are allowed to run to extract the maximum profit potential of each move. So, the question to ask yourself is “am I using a good system and do I have the discipline to follow it consistently?”. If you can answer yes to both then you are on the road to trading success.

Until next time, good trading

Phil Seaton

PS. You can find out more about our financial spread betting systems by clicking here.

Today we are continuing our series of posts of spread betting strategies for the S&P 500 as the markets continue to be undecided on short term direction.

The past couple of days have seen some movement in the markets during the build up to the Federal Reserve meeting held yesterday. During that meeting the Fed downgraded their recovery outlook and said that interest rates would remain exceptionally low for an extended period. This is not at all surprising and is in line with my own fundamental view on the markets long term.

Since our last post, the S&P 500 has still be unable to clear the resistance level that we have been writing about for what seems like an age now. Resistance is still holding at 1129 on the September contract but at the same time any declines down towards 1100 are also being rejected and this can be seen by the long lower shadows formed on the daily candles.

The past seven sessions have therefore held within a range from 1127.5 to 1102 and a break out from that range could give some decent movement in the direction of the breakout. We also have a rising wedge pattern that is moving in to a narrower range and this also adds weight to a decent move from the eventual breakout. Long term the trend is still down for the S&P 500 so I’m still favouring spread betting strategies from the short side only and will continue to do so until we get a change of long term trend to up and that is some way off at present.

The 200 day moving average is currently sitting at 1106 on the September contract which is just below yesterday’s lows. Therefore this would be the first downside target, followed by 1100. If the market can break down through this support area then we may see a continuation lower towards 1050.

Until next time, good trading

Phil Seaton

PS. You can find out more about our financial spread betting systems and spread betting strategies by clicking here. Our system comes with a full 30 days money back guarantee.

Today we are going to discuss spread betting strategies that can be used ahead of a major news item. Later today the second quarter US GDP numbers come out and we get asked frequently about which spread betting strategies we use ahead of such major news announcements.

The answer is actually quite simple. Since we are technical traders and follow mechanical trading rules we are either already in a trade if we want to be in it, or know where we will get in should our entry criteria be hit. We don’t base our trading decisions on trying to predict the news items, or how the markets will react to the news. We simply follow the trend.

Since our spread betting system is a weekly system, we don’t enter trades immediately before, during or after a news item as we are already in the trades that we want to be in. We don’t therefore enter again until the following Monday, using the closing price on Friday as our entry should the price action in the immediately preceding week trigger a buy or sell signal for us. We therefore use spread betting strategies based on a weekly timeframe and don’t concern ourselves with intraday news.

Trading systems are either predictive or reactive. We don’t get involved in trying to predict, but rather react to price action. We know already where we want to get in and where we want to get out based on the price and chart structure. The rest is irrelevant. Should the market exceed the levels that we have predetermined will be optimum for entry, either for long or short trades, then we will enter. If the market does not exceed those levels then we stay out.

Let’s just look at what is expected today as far as the news is concerned out of interest, although we won’t be basing any of our spread betting strategies on it. Economists are expecting that US GDP growth for the second quarter will come in at 2.5%. I expect that it may disappoint and come in lower than that, possibly closer to 2%. If that does happen then we may see a reaction to the news that moves stocks and currencies considerably.

We have already covered this week that the long term trend is down for stocks and have identified a couple of key resistance levels, which are 1118 and 1129 on the September S&P 500. As long as the market stays below those 2 levels then the short and long term trends will remain down and the odds favour lower prices.

Yesterday we got a close below the important 1100 level at 1097 on the September contract and also below the 200 day moving average, which many traders look at. We also had an evening star pattern form on the S&P 500 earlier in the week which is bearish for the short term so various things point to lower prices to come.

What this really boils down to is that you should have a trading plan in place ahead of any news items or price reactions and know exactly what you are going to do and why. Once you have your plan in place then you stick to spread betting strategies within that plan and trade accordingly.

There are many traders and economists that try to predict news items and how the markets will react to the news item depending on what the numbers are. It’s far better in my opinion to just focus on the most important indicator of all, which is the price itself. Then all you have to do is follow the price and the trend.

Until next time, good trading

Phil Seaton

PS. You can find out more about our financial spread betting systems and spread betting strategies by clicking here.

In our last post of spread betting strategies for Gold, posted Friday morning, we wrote that Gold was in a trading range between $1200 and $1175. Later on that day Gold actually pierced $1200 resistance intra day but was unable to stay above that level and proceeded lower.

On Monday the market was lower again and yesterday we got a downside breakout through support at $1175 (August contract). IG Index is now quoting Gold on the December contract so we now shift our focus to December’s contract. There is actually only $3.80 difference between the 2 contracts, with last night’s close on August at $1158 and December’s at $1161.8

Looking at the December contract there is some support at $1161, which is right where last night closed. In early trading this morning the market is around $5 higher at the time of writing this. Slightly below that support level we also have the 200 day moving average, which may also provide support. The 200 day moving average is currently sitting at $1150.

Candlechart pattern wise we have 3 consecutive red candles, which indicates 3 straight down days, with yesterday being a log red candle for the large move down from highs of $1190, down almost $30 in the day to $1161.8.

The short term is without doubt down, but the long term trend is still up and the market is above the 200 day moving average, which many traders will be watching. There are still other levels of support in this market that need to be cleared before a long term change of trend to down is confirmed, so for now we are sitting on the sidelines in this market. Longer term we’re still therefore only looking at spread betting strategies from the long side, but will need to see a move back above $1222 before there is any upside momentum.

Good trading

Phil Seaton

PS. Find out more about LS Trader financial spread betting system and our spread betting strategies by clicking here.

Welcome to my new financial spread betting blog .This blog is all about financial spread betting and the spread betting strategies and beliefs that I have discovered over the past decade or so that lead to financial success in the markets.

There are many different styles, methods and systems that traders use in spread betting the markets and my aim on this site is to explain the benefits and pitfalls of many of these methods. There is so much conflicting information and what I would call misinformation in the marketplace on what is required to be a successful trader so my aim is to help you navigate this path successfully and avoid any unnecessary and unprofitable detours!

Over the weeks and months ahead I will post my thoughts on the financial markets and what I think may be on the horizon. It is important at this point to state my belief that the future cannot be predicted as there are simply too many variables and unknowns and the fact that as of now the future does not exist, but by looking at market trends in the markets and certain support and resistance points on the charts, a trader can get a good idea of what may be ahead.

Over the years I have read a vast amount of books that are available on the markets and have specifically made a point of studying successful traders and in doing so look for common denominators that enable these superior trades to step ahead of the crowd and achieve consistent returns in the markets.

Backed with all this information I have vigorously researched and tested virtually every trading system and or indicator and have found what is reliable and what is bogus. I have coded hundreds of different systems and rules and run literally hundreds of thousands of backtests over a long period of market data.

My aim when I started this was to approach the markets with a blank canvas and not take anything on hearsay, but to test it out and find out through experience what works and what does not work. This has enabled me to create an extremely powerful spread betting system which I myself have traded for several years.

I hope you enjoy and benefit from my articles on this blog site and please feel free to leave any comments or ask any questions.

Good luck in your trading

Phil Seaton

PS. Find out more about my financial spread betting system and spread betting strategies here