Self Mastery And Spread Betting

I do a little spread betting, currently only on paper. I use technical trading methods (trend following), looking for patterns on share graphs, as distinct from fundamental methods, where a person studies price-earnings ratios and a lot else besides.

Both methods work, when properly applied, that is, they are profitable.

Someone wrote a book called A Random Walk Down Wall Street, claiming share prices were completely random and there is no profitable methodology.

Warren Buffet, the richest man in the world, uses fundamental methods, and successful technical traders say 'Look at my bank balance'.

Technical trading is simpler, there are less parameters, that is why I chose it.

Basically, the books say, there are three requirements (a three legged stool), method, money management and discipline. The third rule is, follow the rules.

As to method, A speaker described two hundred different methods, all of which work. They are all, as it were, the same only different, involving patterns of movement. Someone said all successful traders develop their own style, a methodology that suits them and works for them and that they understand. A person may do as I am doing now, test out their chosen methodology in the real world, in real time, on real data, and, when satisfied, enter the real world of spread betting.

Tests have been done over ten or more years of data.

I use a standard computer with the Sharescope program in the version which gives daily closing prices (there is also a real time version for day traders). This costs about three hundred pounds a year for the data feed, giving the share prices. The program also provides graphs with moving average lines and other features, and is easy to use.

Bets may be placed on line with a spread betting firm with a few key entries and mouse clicks.
You don't even need a computer. A man in his seventies uses only the Financial Times closing prices and telephones in his bets.

Money management basically means never risking more that ten or fifteen per cent of your trading capital at any one time and never risking more than you can afford to lose.
The minimum bet sizes are approximately fifty cents a point (a movement of one cent) on American shares. Bets may also be placed on currencies, commodities (oil, etc.) and indices, both in an upward and downward direction. Stop losses should be placed, and may be moved as often as you like, at no cost to you.

I took a day trade on Google some time ago, betting fifty cents a point, using the spreadbetting company's own real time graph, and made a profit of one hundred and three euros within about an hour. From looking at graphs, I knew that Google sometimes moves up or down about twenty dollars in a day (two thousand points), and it appeared to be shooting up. I placed a bet, with my first stop loss set back at a position where I would lose about twenty euros if the share moved down (I was betting upwards). I moved my stop loss up every few minutes as the price rose, staying a bit behind the price to allow for fluctuations, moving it probably fifteen times in all. Shortly after entering the trade, the bet was at break even, then it moved into what is called 'locked in profit', i.e., if the price moved backwards it would have hit my stop loss, the bet would have ended, and I would make the points gain multiplied by the bet per point (fifty cents). Eventually, when I had the final stop loss placed, the price moved backwards, hitting my stop loss, and the bet was over.

I would not normally bet on Google because, at over five hundred dollars a share, the amount I could lose would be too great.

On paper, for testing purposes, I limit myself to shares having a value between ten and fifty dollars.

It has been said that there is a continual turnover of traders, not just in spreadbetting. They come in, lose all their money, then new ones come in. Only ten per cent of traders are successful and stay the course.

What differentiates them? One word: discipline.

And the failures? Where do they go wrong? A myriad of ways. Greed is a big factor. They have a few wins, then abandon money management, then everything goes wrong.
Or egotism comes into play, they think their success is due to themself, not the system, abandon the system, and that is the end.

In trading, you will, of course, always have losses, no system is perfect, otherwise everyone would do it, but most people would still probably lose because they would not follow the rules.

Keep your losses small (use stop losses and bets-per-point appropriate to your budget) and let your profits ride, that is the maxim. You can lose on seventy per cent of your bets and still make a profit.

It is the same in every walk of life, in every occupation. So many people know the rules, so few follow them. Learning the rules is basically simple, mastering the self is the hard part. Look at the great snooker players, they are masters of self control.

I do my virtual trading with my brother, it takes an hour or less per day. One day my brother told a friend of ours that we had ten bets out and everyone of them won. "Were you using the system?" our friend asked. Of course we were, otherwise we might as well stick pins in paper to pick our bets. We had similar success on at least one other occasion. By and large, over the last few months, we are winning on paper. In reality, I would limit myself to three bets out at any one time, but for practice purposes we limit the number to ten.

Someone said about investing in real shares, your portfolio should not include more than ten shares, because otherwise it is too hard to keep track of them.

Regarding technical trading, one of the traders whose books I bought said he could teach it to an eleven year old and he would out-perform most fund managers.

Have you ever asked yourself why there are so few successful people in any walk of life? The magic ingredient is dedication, putting purpose first, putting what you are doing first, which means putting the self aside. Humility wins, egotism fails. (The meek shall inherit the earth).

The true masters are masters of self-mastery. Or to put it another way, in mastering a subject, you master yourself.

The rules are simple, following them is the hard part.

I am not sure whether I will actually enter the real world of spread betting, though I have accounts with two spread betting firms, I prefer writing.