Continuing our series of recent posts on Gold and how to spread bet gold, we saw a new all time high intra-day yesterday at $1266.50 (August contract). However, the market was unable to hold on to those highs and sold off for the rest of the day, forming a bearish engulfing pattern. As the name suggests, this is a bearish pattern and a reversal signal. However, it may not yet be the end of the uptrend.

In the most recent post of our series about spread betting Gold, we wrote that we would be looking for another close on Monday or early in the week above prior all time highs and resistance around $1255 to confirm the bullish momentum and the breakout higher from the ascending triangle. We did not get this yesterday and the market in fact closed below prior resistance at $1240.7.

What’s interesting to note is that the lows for the day at $1231.60 were right on the lower support line from the previously mentioned ascending triangle. If this support line can hold then we may yet see a move back up towards the top of the pattern and new all time highs. Conversely, a break through this support line will likely see the market push lower towards support around the $1215-1217 level where we had a bullish engulfing pattern confirming that support area last week. Until we get a close below that bullish engulfing pattern then that pattern is still holding and may push the market higher.

Further below that there is also support at $1200. As of now, a break down through that support would suggest that the uptrend is over, but as long as $1200 holds then the short and long term trends are still up, and these 2 factors are the most important factors of all. For now we’ll have to wait and see what happens.

Good trading

Phil Seaton

PS. You can find out more about the LS Trader financial spread betting system by clicking here. The system comes with a 30 day no questions asked money back guarantee

Spread betting stocks and stock indexes.The stock markets continue to trade within the current lateral trading range. On the S&P 500 (September contract), which is the main stock index, the range is between 1034.80 and 1100. This range has held good for the last 14 sessions.

During this period there have been a few attempted rallies, but each rally has been met with selling, which has pushed the market back towards the lows of the range. Likewise, there have been a couple of attempts to break support at the lows and these have been met with buying. During sideways action like this it is best to wait for the breakout and then follow the market in the direction of the breakout.

In the short term there is a bias to the downside but the long term trend remains up, and the divergence between the two trend periods is keeping the markets in a sideways range. If 1100 can be cleared to the upside we may get a continuation higher to around 1140 before the next level of resistance comes in to play.

The more critical level though is the bottom of the range at 1034.80 as a break here would change the long term trend to down, aligning the short and long term trends and likely give rise to more selling. This level is even more significant as the lows here are at the same level of the lows of the previous sell off on February 5^th, where we had a hammer pattern from which the rally began.

Therefore, a close below the February 5^th lows will negate the hammer pattern (which is a reversal signal and still holding good until the market closes below the pattern) and also give a long term trend change to down. A break here could lead to selling down towards the 960 level and could provide some good spread betting opportunities to the downside.

At LS Trader, since we are trend followers, we don’t initiate trades on reversal patterns to go counter trend, but instead watch them as a momentum play if the market closes beyond them, thereby canceling the reversal signal and giving a momentum signal in the direction of the trend instead.

You can find out more about the LS Trader financial spread betting system and how we use financial spread betting with our trend following system to beat the markets, including the stock indexes such as the S&P 500 by visiting the LS Trader website.

Good trading

Phil Seaton

PS. To find out more about financial spread betting and how we spread bet the markets for profit, please visit the LS Trader website by clicking here. The system comes with a 30 day no questions asked money back guarantee

The question that users of financial spread betting are asking at the moment is where next for Gold?

Last week, August Gold managed a small gain for the week of 0.22% but there were signs that the market was getting tired and was possibly forming a lower high at the resistance area around $1220. As we had written in this week’s weekly update the long term trend remains up and will continue to be so as long as support around $1170 holds.

However, the possible lower high and the failure to clear resistance had been asserting a downward pressure on Gold until yesterday. Gold gapped higher at the open (a bullish sign), reaching an intra day high of $1246.7 before falling back slightly to close at $1240.8. The high of the day was just shy of the all time highs posted in this contract on the 14^th May at $1251.4. We have had some reversal patterns near the all time highs, especially on the weekly chart, which appeared to be confirming resistance, which would be expected at all time highs.

Moving forward, if we can get a close above $1251.4 that will negate the reversal patterns and possibly lead to the next wave of buying pressure, which could push the market higher once again. Failure though to close above this level may lead to another sell off, back towards the first support area around $1200.

The fact that Gold has continued to rise in spite of US dollar strength is a bullish sign for Gold as normally these 2 markets have a negative correlation. Aside from technical aspects there are bullish and bearish factors that are likely to affect Gold in the medium term so the best approach is not to try to guess future market direction but to follow the trend and let the market tell you where it wants to go.

At LS Trader we remain long on Gold as both the short and long term trends remain up. We have been long Gold since we entered the market in the June contract on the 26^th April at $1153, so this is already a nice profitable trade for us. One of the best and easiest ways to trade gold is through financial spread betting as spread bets on gold can be placed from as little as £1 per point, and all profits are tax free.

To find out more about financial spread betting and how we spread bet the markets for profit, including Gold, please visit the LS Trader website by clicking here.

Good trading

Phil Seaton

PS. You can sign up for a risk free trial of the LS Trader financial spread betting system by clicking here. The system comes with a 30 day no questions asked money back guarantee.

Here is the seventh and final part of our 7 part series titled “The 7 Deadly Financial Spread Betting Mistakes”. Today we will discuss the seventh financial spread betting mistake that financial traders make:

Mistake #7 Listening to the news and fundamental analysis

Essentially there are two main trading styles, one is fundamental trading and the other is technical trading. Unless you are a full time trader and can devote your life to studying the markets constantly, fundamental analysis is not the way to go. Unless you are George Soros who has a lifetime of experience behind him and an excellent understanding of fundamentals you will almost certainly be a losing trader by trading fundamentals.

Even full time traders and fund managers who devote their lives to analysing the fundamental aspects of the markets and hire a large staff to do research for them still get it wrong most of the time. That’s one of the reasons why most fund returns are so poor.

The reason why fundamental analysis is so ineffective and very few traders can make money from this approach is that there are so many variables. For example, when you hear a particular news item or hear very good results from a certain company, many times the price will go down. This is puzzling to most people but the reason is that the markets are always looking ahead and have already discounted the news in most cases.

Another problem with fundamental analysis is that it is also difficult to know what reports or news items are actually true, and even if you know what is true how can you be sure that your interpretation of the news is correct? What about timing? Even if you have good reliable knowledge and a true interpretation of the news, how do you know when to act on it?

Perhaps the most damaging aspect of fundamental analysis is that it does not afford any risk control. If you think a certain market is going to go up but instead it starts to go down, as the price moves further away from your idea, or the point at which you though it was a buy, it must be an even better buy. The market then drops further and looks like a better buy still and so it goes on. Before you know it you have a very large losing position on your hands.

Essentially, if you use the fundamental trading style and are convinced of your research, the more a trade goes against you the better it looks so you end up buying more and getting into real trouble.

You hear about cases like this all the time, and often hear comments from fund managers like “We were convinced of our analysis and that the market was a buy. We bought it all the way down”. If you had been trading correctly, you would just get out of the trade whilst your loss was small. If you are holding a losing trade after 2-3 weeks you are clearly wrong and should be looking to exit the trade.

I have found in my own trading that even if you are not trading on fundamentals but are using a technical trading approach you can be negatively influenced by the news without wanting to be. For this reason I believe that many people are better off avoiding the news altogether.

For example, let’s say that your trading system has generated a buy signal on a particular market but you have heard a rumour or news item that may affect the market you want to buy, you decide it is prudent to hold off from taking the signal and wait. It turns out that the market ended up going up exactly as your system had indicated, but you missed the move through doubting your system.

Now you are reluctant to take the trade as it has moved from where you wanted to buy it and decide to wait until the market comes back to the price that you were originally going to buy at. The market never comes back to that level and becomes one of the great trades of the year. You missed it all because of some news item. Had you not followed the news you would not have overruled your trading system and would now be sitting on a profitable trade.

Of course this could work the other way around and keep you from taking a losing trade. The fact is that it is important to have a trading system and to follow it consistently, regardless of what items you hear in the news or read in the papers. Your profits at the end of the year will come from following your system consistently throughout the year and not from listening to news items.

There is however a positive use for the news which can be useful some of the time and that is using news as a contra indicator. For example, if good news comes out on a particular market and that market goes down then you may want to think about liquidating a long trade or if you are out of a market possibly going short.

Another use for news items is magazine front covers. These are often excellent contra indicators and can be very useful for picking market turning points and can be used to fade (go opposite) to the news. For example, say that we get a headline on a major magazine that runs something like “Cheap oil forever”, that’s likely to be a sign that the oil markets are either at the bottom or near the bottom of the market.

How can this be? Essentially there are 3 types of market participants:

1. The investor. Always in early and happy to wait for returns on their investments
2. The trader. Never in or out first but catches the meat of the move in the middle
3. The public. Nearly always wrong and last in on major moves and also last out.

The cycle tends to go from investor buying at the lows but selling a bit before the top to the public. The public gets in usually at or near the top of the market. Because the investor and the trader are already in the market, the public has nobody to sell to and so as there are no more buyers, the price falls.

When a market reaches the stage of hitting the front covers we are usually at the stage where all of the public are in the market already, so this is a good indicator that the market may be due to reverse. To continue our cycle, the trader usually gives back some profits and sells on the way down. The trader when convinced the market is now in a downtrend sells the market short and profits from the down move.

The public hold on right to the bottom and when they can’t stand it anymore they then sell back at the bottom to the investor and so the cycle begins again. This is another reason why such a high percentage of people lose money (especially the public) in the stock markets. The solution is to identify and follow trends.

A good trading system such as the LS Trader financial spread betting system will automatically get you in to the market when the conditions are optimal. It will also get you out of the market if things are not going for you with a minimal loss. You do not need to know the reasons why a market is moving up (or down) only that it is and then jump on board. This is the way to make consistent profits trading the financial markets.

I hope you have enjoyed reading this 7 part series that I call “The 7 deadly financial spread betting mistakes”.

Good luck in your trading

Phil Seaton

PS. If you are not already subscribed to The LS Trader system please click here to start your 30 day trial. The system has been built around all the points covered in this article and avoids all the mistakes that most users of financial spread betting make. The system comes with a full 30 day money back guarantee.

Here is the fifth part of our 7 part series titled “The 7 Deadly Financial Spread Betting Mistakes”. Today we will discuss the fifth of the 7 financial spread betting mistakes that financial traders make:

Mistake #5 Taking too much risk

Most online traders take too much risk when trading. This is especially the case for people trading online with financial spread betting.

In futures trading, traders decide how many contracts to buy of each instrument, but in financial spread betting, traders only have to decide how much to bet per point. This makes it much easier to over trade and to risk too much on each trade.

It is also much easier now to trade too frequently, with the temptation to sit in front of the screen all day. It is no longer necessary to pick up the phone to execute your trades as you can access your financial spread betting account 24 hours a day and can trade with ease at the press of a button. This can very easily lead to over trading and taking too much risk.

To get around this it is necessary to have a specific system to follow with specific rules which will govern each of the following:

1.      The markets (instruments) in your portfolio.

The selection of markets (instruments) in your portfolio is a crucial factor. It is important to select actively traded markets so that you can exit your trade when you want to. If liquidity in a certain market is low this can prove difficult and expensive as you may get a far worse price than you had expected when you go to exit your trade.

2.      How many markets in your portfolio you will trade at any given time

The number of trades that you will have open at any one time determines the total amount of risk that you have. There must be a point at which you do not open any new trades until some prior trades have been exited, or the stop loss in some trades has moved up to the entry level.

3.      How much exposure you will have on open trades at any one time

This follows on from point 2. If you are going to risk 2% per trade then 50 trades open at one time would mean that 100% of your account is exposed. This would be an extremely dangerous game to play and the volatility in your account would be extremely high.

If you are only prepared to risk 50% of your account then you can only have 25 trades open at any one time. Obviously as certain trades progress you can move your stops up to break even and then eventually to lock in profit. At this point you could have more trades open but not so much risk exposure.

4.      Your bet size for each individual instrument.

Most people who use financial spread betting bet far too much per point. The correct approach is to decide where you will set your initial stops, assign an amount of risk per trade which should be the same for all trades and then subtract your exit price from your entry price. You would then divide the number of points that your stop is away from the entry price by your risk per trade which would give you your bet size per point.

5.      The distance your initial stop loss is from your entry price

Most online traders put their initial stops too close to the market and bet too much per point. The correct approach is to use a wider stop and a smaller bet size. Stops which are too close to the market invariably get hit, causing you to get taken out of a trade prematurely. At the same time you don’t want your stops too far away as this will cause you to trade with a reduced size which will limit your potential profit.

6.      How you will manage your trade once it is open and when you will exit the trade.

You must have a set point at which you will exit your trade. A good trading system will have specific rules for this and your stop should follow up behind the current price as the trade progresses. Initially moving stops up behind a trade as the trend progresses will enable you to limit your exposure on that particular market and ultimately to lock in profit whilst still allowing the trade to progress.

7.      The correlation between each instrument.

Many markets are correlated. Some are highly correlated such as Crude Oil and No Lead Gasoline; others are slightly less correlated, like Soybeans and Wheat. Others have little or no real correlation at all.

If you trade too many markets that are highly correlated you are trading the equivalent of one trade but with much more risk as you have multiple trades. A dramatic move in these markets is likely to cause a severe drop in equity in your account.

8.      The maximum drawdown in equity that the system will generate

A drawdown in equity is the distance of the highest point of equity to the lowest point. A good trading system will have a high profit return with the smallest possible drawdowns.

The maximum drawdown that the system has should be within the comfort zone of the trader. Some traders are able to withstand high volatility in their account and larger drawdowns and are subsequently able to capitalize on market moves. Other traders are more risk averse and have to reduce either the number of instruments that they trade or the risk per trade (bet size).

9.      The duration of the drawdowns

The duration of the drawdown is how long it takes in trading days to return to new equity highs from the lowest point. A good trading system will recover in a relatively short period of time.

10.  The frequency of the drawdowns

The frequency of drawdowns a system has is also a factor. If you trade a system which has frequent drawdowns in equity of 50%+ you fill find it extremely difficult to follow the system over a long period of time, increasing the likelihood that you will abandon the system. Chopping and changing systems will ensure that consistent profits will elude you.

The LS Trader system takes all of the above factors into account and is a robust trading system, which has been optimized in all of the above factors, culminating in a system which has high returns whilst also keeping drawdowns to a minimum. There are specific rules to cover all of these areas meaning that the trader will always know exactly what to do in any eventuality.

In the next part which will be published in the next few days we will discuss Deadly Financial Spread Betting Mistake #6 which is titled “Day Trading and what all day traders should know”.

Until then, good luck in your trading.

Phil Seaton

PS. If you are not already subscribed to the LS Trader system, please click here to start your 30 day trial. The Ls Trader system has been built around all the points covered in this article and avoids all the mistakes that most users of financial spread betting make.

Here is the fourth part of our 7 part series titled “The 7 Deadly Financial Spread Betting Mistakes”. Today we will discuss the fourth of the 7 financial spread betting mistakes that financial traders make:

Mistake #4 Averaging down (adding to losing trades)

This is one of the biggest mistakes that financial traders make and it is the downfall of many traders and trading systems. Many traders think it’s a good idea to add to a losing trade as they think that if they take a second position they are averaging down their price. In rare cases this might actually work, but in most cases it will go against you and in fact creates a snowballing effect, whereas now instead of having a single small loss, you now have 2 losses.

Now you can find yourself getting into real trouble by opening a third and a fourth unit. Before long you have a huge position open which is way out of balance for your account and much too risky. These trades often go wrong and when they do they wipe out all of your trading capital. The only real effect of adding to losing trades is an increase in risk.

The right thing to do when a market goes against you is to just get out of the trade when it is clear that you are wrong. A good trading system should have specific rules for defining when to exit a trade if it goes against you. This leads to taking the occasional small loss, but is not emotionally or financially damaging and leaves your trading capital intact for when the market is right and sets you up nicely to take advantage of the next big move in the market.

To be clear, a unit is the position size that you have open. In futures trading this would be the number of contracts that you opened on your original position. In financial spread betting a unit would be the bet size per point that you had opened on your original trade.

For example, let’s say that you are using financial spread betting and that you have opened a trade at £5 per point. Adding a unit would mean that you opened a second position in the same direction (either long or short) for another £5, meaning that you would be either net long (or short) £10 per point. Each additional unit would then be another £5 per point, so you can see how you can quickly build up a large position with a lot of exposure.

Most traders take too much risk in the first place and then compound that mistake by adding more and more trades as the trade goes against them. This is why you hear some horror stories about amateur traders dabbling in the markets and losing their shirts. Adding to losing trades is fatal to your long term profitability as a trader.

Not quite as bad but also very destabilizing to your profitability as a trader is adding to winning traders. Many so called trading gurus will tell you that you should add units to winning trades. I believe that this is also a mistake and is poor advice and here’s why…

In my earlier days as a trader I used to add to trades that went in my favour. This is all well and good when things are going well, but what I found would happen was that I would pyramid up my position and get up to about 4 units on a trade, only for the market to reverse and cause me to take a large loss. This can be very frustrating, especially as oftentimes if you had just left your single trade on and had not moved your stops up behind the market as you added on units, you would still have been in your original trade without your stops being hit.

One of the major drawbacks with adding on multiple units is that you either leave a very wide stop loss, or you move your stops up behind the market. Moving stops up behind the market can often cause you to get stopped out of the trade on a small reversal, even though the trend is still in process.

After extensive back testing over a 25 year market history database, I proved to myself that adding units on to trades is a mistake, whether you are adding units to a losing trade or a winning trade. Adding units to losing trades inevitably causes your account to eventually go to zero, as sooner or later you will end up taking a huge loss. While the effects of adding units to winning trades are not quite so damaging, I found in every test I made that the profitability of the trading system actually went down, while the risk profile increased.

The LS Trader system takes all this into account and only trades single units. The LS Trader System does not add to losing or winning trades, therefore keeping the system stable without too much exposure to risk. Even with just one single unit per trade, the LS Trader system is extremely profitable.

In essence, a trading system that adds units is less stable, prone to larger and more frequent drawdowns and has a higher risk exposure. This is not the way to trade successfully. Stick with a single unit. If the trade goes against you then you should exit with a small loss and live to fight another day. If the trade goes in your favour, then hold it for the duration of the trade. You will still make more than enough profit from the occasional big winning trade to pay for all your losses and still leave enough over to make a handsome profit.

This leads us nicely on to Deadly Online Trading Mistake #5 which is titled “Taking too much risk”. This will be published here in the next few days.

Until then, good luck in your trading.

Phil Seaton

PS. You can start a 30 day trial to the LS Trader financial spread betting system by clicking here

Here is the third part of our 7 part series titled “The 7 Deadly Financial Spread Betting Mistakes”. Today we will discuss the third of the 7 financial spread betting mistakes that financial traders make:

Mistake # 3 Trading against the trend

You should never trade against the trend but should always follow the trend. There are several reasons for this. The first reason is that the price is the only instrument that takes into account all the knowledge everybody has about that particular commodity. If the price is going up then there is a reason for that. We do not need to know the reason, we only have to get on board and stay with the trend until it ends.

Conversely, if the price is going down then there is a reason for that as well. Why would we want to get on the wrong side of the prevailing trend? Traders want to be right and they want to say “I got in right at the bottom, look how smart I am”, not realising that those bottom few points that traders try to pick are the most expensive few points in history.

If you think about it, how likely is it that you are able to pick a point near a reversal in price and that the price is just going to stop and then start moving the other way? It’s not really very likely. Far more likely is that the price will continue to move in the same direction that it is already going.

The example I like to use is that counter trend trading is like jumping in front of a fast moving train and hoping that it stops right in front of you, turns around and then starts going in the opposite direction. Why not just jump on the train in the direction it’s already going and stay on board for the duration of the journey (the trend) and then get off the train (exit the trade) when the train finally reaches its destination and starts to turn back?

This is the optimum approach and affords easy risk control, because it will soon become obvious if the trend is not going to continue and you can then exit the trade with a small loss, leaving your trading capital intact and you ready to take the next good trading opportunity that comes along.

If you are counter trend trading and are looking for the top or bottom of the market and you decide for example that Gold has dropped to $850 and you are sure this is the bottom and it has to go higher (after all only a week ago it was at $900!) you buy Gold at $850 only for it to fall to $830. If it was a good buy at $850 it must be an even better buy at $850, so you decide to open a new trade at $830 (after all this is giving you an average price of $840 which must be good!). This process is known as averaging down. We’ll talk about this in part 4 of The 7 Deadly Financial Spread Betting Mistakes.

Meanwhile, Gold falls further still. Now you have a big loss on your hands and Gold stands at $820. Using the same logic as before, you borrow some money and buy more Gold at $820. Again you are wrong and Gold falls further to $790 and therefore wipes out your account. This kind of thinking is commonplace and is the cause of most people losing all their money because people buy into the myth that things return to normal. Sometimes they do but many times they do not.

The fact remains that if you were trend following, i.e. trading in the direction of the trend then you would not have been in this position in the first place as you would have exited your trade shortly after it moved against you, taking a small loss. You would also not have averaged down (added extra trades to your original position), as this would be taking trades against the trend. Therefore you would have just taken 1 small loss, instead of several large losses, and lived to fight another day.

A very popular trading theory is buying on dips and selling rallies. This is counter trend and is a mistake. Testing this theory out over a long period of data proves that this is a losing strategy. The reason for this is that if the market falls and you are looking to buy on a dip, how do you know that this is not the start of a trend reversal? You could buy on the dip only for the market to continue to go against you. The same is true for selling rallies.

The rule here is that you must trade with the trend and therefore you must buy strength and sell weakness. Therefore you should never buy on dips or sell rallies but should wait for the momentum of the market to go your way before entering. Counter trend trading is going against the market and is best avoided.

Longevity in trading is the key as long as you have a system that has a positive expectancy, or an edge. The LS Trader system is such a trading system as it has a positive expectancy and therefore an edge. The longer you stay in the game, the more chance that edge has of coming to the fore. This leads to long term profits, which is what all traders are after.

Part 4 of the 7 deadly financial spread betting mistakes will be published here in the next few days.

Good trading

Phil Seaton

PS. If you are not already subscribed to The LS Trader system, please click here for a 30 day trial subscription. The LS trader system has been built around all the points covered in this article and avoids all the mistakes that most online traders make. You can try the system out for a full 30 days and if you are not delighted with it, simply cancel and receive a full refund of your subscription.

This week’s financial spread betting update is now available and can be read by clicking here.

In this week’s issue we look at how the major stock indexes shrugged off the Goldman Sachs news and went on to post new highs for the year again, showing that the sell off the previous week was indeed a knee jerk reaction to the news as we had written last week.

We also look at the metals markets and in particular, Gold, which could be on the verge of a move back towards all time highs if a key resistance level can be cleared. In addition we look at the forex markets and the dollar index.

This week’s spread betting update begins with:

The past week has seen the markets recover from the Goldman Sachs induced sell-off and once again seen the major indexes post new highs for the year. So far, the markets have shrugged off all the bad news that has come out of late and continue to move higher.…continue reading by clicking here

Good trading

Phil Seaton

PS. You can sign up for a risk free trial of the LS Trader financial spread betting system by clicking here. The system comes with a 30 day no questions asked money back guarantee.

This is the first part of a 7 part article I have written titled “The 7 Deadly Financial Spread Betting Mistakes”. This 7 part series should be read in conjunction with my previously posted 7 Rules of Successful Financial Spread Betting

Today we will discuss the first of the 7 financial spread betting mistakes that financial traders make.

Mistake # 1 Giving losses more room

This is one of the biggest mistakes, if not the biggest mistake a financial trader can make. You must cut your losses short. You must never move your stop loss back when the price is approaching your stop loss to keep you in a trade in the hope that the price will turn around. Occasionally this may happen but over time you will lose more money by giving your trade more room.

In some instances this mistake can lead to you taking such a large loss that you cannot recover from it. The important thing is to never take a big loss. You can ensure that you never take a big loss but cutting your losses short and sticking to your pre determined exit point.

One of the main reasons that traders move their stops back is their unwillingness to admit that they are wrong. They would rather move their stops back in the hope that the market turns around even if this means they take a bigger loss than they would have previously than take a loss. This is such a huge mistake that it can’t be overemphasised how important it is not to do this.

I often think that many traders are more concerned with their egos than their profits as they are more concerned with being right than they are with making money. This prevents them from admitting they are wrong on trades and taking losses. This accounts for a lot of the nonsense that is out there pertaining to a high percentage of winning trades.

A high percentage of winning trades is in fact a fairly meaningless statistic as what really counts is how much you make when you win and how little you lose when you are wrong. These systems of high winning trade percentages have it the wrong way around in that when they win they win small but when they lose they lose big. This is the opposite of how successful traders and trading systems work.

You must trade with a plan. You must decide where you are getting out of a trade before you enter it. You must decide how much you are going to risk on a trade and then stick to that plan. It is imperative to add a stop loss to your trade when you open it, and not adjust your stop regardless of what happens.

You must always decide before opening any trades how much of your account equity that you are going to risk on any particular trade and must set your stops accordingly. If the market approaches that level you must resist the temptation to move your stops back and stick to your system.

Traders suffer from what I call immediacy bias in that they always want to improve the trades that are right in front of them that they have open on their accounts now. The current trades for that reason seem to take on more importance than they should. It’s just another trade and when viewed from the larger picture of the few hundred or so trades that a trader will make during the course of the year, it’s not so important.

What is important is sticking to your trading system and trading rules as it is the consistency in following these rules that brings in the profits over time. If your trade goes wrong, admit that you were wrong and take your medicine and exit the trade. This way you can live to fight another day and give the positive expectancy that your trading system has the chance to come to the fore.

It’s the staying in the game over the long period that makes the money. A trader must always be mindful of the risk of ruin as the worst thing that can ever happen to a trader is that he loses his money and can no longer trade. By sticking to a good trading system and consistently following the trading rules of that system this should never happen.

With financial spread betting, it is even easier to move your stops back to keep you in a trade when it is going against you as you only need to spend 2 seconds adjusting your stop on your financial spread betting account, rather than having to pick up the phone to speak to your broker. You must resist this temptation and have the discipline to stick to your trading system.

The more mechanical and automated your system is the better you will be as a trader. This means that you should always exit your trades via the stop loss whether it is for cutting a loss or for taking a profit. Remove emotion and discretion as much as possible from your trading and you will be much more successful and profitable as a trader.

If you cut your losing trades short and allow your winners to run, your losing trades will be smaller than your winning trades. This will mean that you can afford to be wrong more often than you are right and still end up making money.

I will be posting the second of the 7 financial spread betting mistakes in the next few days.

Good luck in your financial spread betting

Phil Seaton

PS. Click here to sign up for a 30 day trial to the LS Trader Financial Spread Betting System

Phil Seaton’s 7 Rules of Successful Financial Spread Betting

Here is the 7^th and final part of my 7 rules of successful financial spread betting

7.    Never add to losing trades

Seldom in trading is a mistake so expensive and as commonly made as this one. In fact most traders think it’s a good idea to add to a losing trade. Perish the thought. They think that if they take a second position they are averaging down their price. In rare cases this might actually work, but in most cases it will go against you and in fact creates a snowballing effect, whereas now instead of having a single small loss, you now have 2 losses.

This is where you can get into real trouble and open a third and a fourth trade. Before long you have a huge position open which is way out of balance for your account and much too risky. These trades often go wrong and when they do they wipe out all of your trading capital.

The right play here is that if you have a trade that has been going against you and it is clear that you are wrong on the trade, just get out of the market. This leads to taking the occasional small loss, but is not emotionally or financially damaging and leaves your trading capital intact for when the market is right and sets you up nicely to take advantage of the next big move in the market.

You may often hear people talk about buying at a lower price if the market has gone against them, as it lowers their “average” price. This is total nonsense and is extremely risky. Not only that, but when you add to a trade that is going against you, you are going counter to the trend at that moment. It may well be that the trend has already reversed and by adding to losing trades you may end up with a large position against the trend.

The other side of adding to losing trades is a much more successful strategy of adding to winning trades. Several successful traders do add a second and a third unit to their trades. Personally, in my own testing I have found that a trader is better to concentrate on following their system on a single unit, rather than worry about adding to winning or losing trades.

Let me define trading units for clarity. Say that you are again trading Gold and you open your initial position at £10 per point. Let’s say that you bought Gold at 900 with stops at 800. If you were adding units you may decide that you will buy another full unit if gold moves to 910. This would mean buying another £10 per point, making your total bet size £20 per point. Then you would wait until 920 and add another unit and so on.

The problem with doing this is that it is great if this trade goes on to become a long trend. You will end up with a huge winner, but what often happens is that just as you complete pyramiding up of positions to say 4 units, the trend reverses and you end up taking an oversized loss.

The other issue is what to do with your stops? Do you, as you add units tighten the stops on the earlier units or do you leave them all at the original stop loss? There are drawbacks with both approaches. These are:

1. You tighten your stops up on your earlier units so that all your stops are the same distance from the market as your latest and final unit. This often causes you to have your stops too close to the market and a correction can take you out of the trade when the trend is still valid.
2. You leave all your stops at the same level as the original unit. Doing this means that you are therefore opening yourself to higher risk, as in our example you would now have £10 x 110 points exposure on your second unit instead of the original 100 points.

The other option is that you leave your stops at the same level, but reduce your bet size per point so that instead of £10 per point you cut back to £9 per point on the second unit. The problem with this approach is that you now have the same risk on the additional units, but because your bet size per point is now smaller, your profit potential is lower but you still have the same risk.

In back testing, none of these approaches are ideal and all of them have a destabilizing effect on the trading system. I have yet to find a way to get around this and end up with a trading system that produces higher returns but does not increase volatility.

The LS Trader system is a single trade unit system. The reason for this is that I found in my own testing that adding units to successful trades makes the system more volatile and increases the drawdown of a system. At the same time, the difference in profit per year is not improved sufficiently by adding units to offset the increased drawdowns.

Therefore, a trading system that adds to winning trades is not really that much more profitable and has larger drawdowns, but a system that adds to losing trades is deadly. Never fall in to the trap of adding to losing trades in the hope that the market will turn around and that you will benefit from a better average price.

Therefore it is better in my opinion to concentrate on sticking to your trading system with a single trading unit and not add to winning trades or losing trades. This will help you to consistently follow your trading system and in the long run should lead to better and more consistent results.

REMEMBER: NEVER ADD TO LOSING TRADES. LOSERS AVERAGE LOSERS.

I hope you have enjoyed reading these 7 rules. If you apply them consistently to your trading they will help you achieve better results. I will be posting regular articles on this site relating to online trading success. Be sure to check back often.

Good luck in your financial spread betting

Phil Seaton

P.S. You can sign up for the LS Trader system here. The LS Trader system includes all 7 of my rules for successful financial spread betting