Trading Psychology in the Spread Betting Markets

By Richard Cox

Successful trading in the financial spread betting markets requires an ability to accurately forecast future price movements, buying assets before they increase in value or selling assets before they decrease in value.  But in order to do this on a regular and consistent basis, spread betting traders must start with the right type of mindset, allowing you to control your decisions in a methodical way that is repeatable and can be consistently followed throughout your trading career.  Here, we highlight some of the key steps in the process.

Setting Realistic Expectations

One of the first steps in the process of learning advanced spread betting trading tactics is to start with realistic expectations.  Many new traders make the mistake of being attracted by the allure of great wealth within a small period of time and with little or no substantive research in learning how these markets operate.

But, it must be remembered that this is a recipe for failure.  Spread betting should be look at like any other business – it takes hard work, dedication, research, and some degree of trial and error.  You will not be rich overnight but if you make a conservative approach and put in the time, you can be successful over the long haul.

Trade with Logic and Probability, Not Emotional Reactions

The next step in understanding the proper trading psychology comes from the idea that successful trading come from logical market analysis – an assessment of the factual probabilities that are currently shown in the market.  Does a trade have a high probability of success or failure?  Or simply a mediocre probability?  The job of a spread betting trader is to have patience, isolate high probability trading opportunities and have the mental wherewithal to stand aside when market conditions are not optimal.

This means taking emotional reactions out of your trading mindset, as much as is realistically possible.  So, whether a trade is working out positively or negatively (posting gains or moving in the wrong direction), we must always remember that the market is operating under rules that can be understood from a broad perspective.  Because of this, irrational decisions must be avoided, and high probability trades must be identified.

Establishing Trading Rules

Building on the idea of avoiding emotional responses to the market, traders must learn to establish trading rules for each position and then stick to those rules once the position is active.  Many new traders make the mistake of constantly changing a position if it is moving in the wrong direction – another recipe for disaster.

Instead, before buying or selling anything, traders should have a firm understanding of when they plan to enter and exit a position, and this must be based on measurable, objective criteria.  When traders alter their positions as markets start to move in the wrong direction, emotions begin to take over and we start to forget why we entered the trade in the first place.   These behaviors must always be avoided.

Structuring a Trading Plan

Now that we understand the basic mindset of a successful trader, we must start to think about our actual trading plan.  To do this, we must understand our needs as a trader:  Are we an aggressive or conservative trader?  A long term trader or short term?  Will we focus on a specific asset class (such as currencies, commodities or stocks), or will we look for opportunities in all trading markets?

Once we know the answers to questions like these, we can base our trades (and our trading plan) on the positions that will best meet these needs and allow us to achieve our goals as traders.

Conclusion

Finding the proper trading mind frame can appear to be a daunting task when we are in the early phases of our trading careers.  But luckily there are ways to approach the process in ways that are rational, reasonable and can provide consistent results over our trading careers.

When we start by setting realistic expectations, trade with logic and probability on our side, establish trading rules and then follow those rules with strict discipline, we can avoid many of the mistakes that are commonly experienced by new traders with little or no real direction in how to properly approach the financial markets.