subject: Trading Systems and the Secrets of Success [print this page] Trading Systems and the Secrets of Success
I have been using spread betting as a trading medium with quite a good degree of success.
For your information spreadbetting is a way of trading the stock market on margin in the United Kingdom.
What is my Secret of Success?
The key to margin trading is to use wide stops. When you are utiising leverage to trade, you simply cannot attempt to trade a stock market trading system with 0.5 ATR stop or the like with spreadbetting. I use 5 ATR and this works fine. The drawback is that you really have to have a longer term trade perspective. Since here you are targeting sizable movements in the market, these trading systems tend not to depend on the wider spreads charged by brokers.
Also, it pays to be diligent when selecting a market to trade. Calculate rollover costs in advance and choose markets there and then...there are some markets where rollover would cost really cost you too much ($1000 and more for me a year). Other markets can be quite cheap though.
Next thing: Place your stop loss at the 'trailing spreadbet stop + betting spread'. Once I even got hit by a provider's spike in the spread where the wider spread made me automatically enter the position. However, in the underlying markets my stop wasn't taken and it wasn't a pleasant experience. This could also work for a shorter term system which is very robust although probably riskier.
With (very) long term trading systems you have the advantage that now trailing stops calculate the distance to the stops. I ignore all markets where the distance proposes that the stop won't be hit as that saves much work. I only have a small number of stops in place and they don't get changed too often.
Ok, it can get quite boring sometimes...
Last tip: Always (!) compare TB performance with your betting performance. My worst nightmare was when some positions had really false risk/bet sizes. It took me some days to discover that. It happens as you maybe didn't adjust bet size to TB equity on entry day. I would recommend to check your bets often. I note the TB equity and the betting equity each morning and graph it with excel. If I have a doubt a double check the spreadbets.
I hope that helps and good luck with your trading.
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