Three words that can sink any spread better

By Deputy Editor Tim Bennett Sep 01, 2010

Tim Bennett

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What differentiates a good spread better from a bad spread better? The same thing that often separates good and bad doctors, or good and bad professional footballers: whilst everyone makes mistakes, the top professionals make them less often. And to do that you need to master three very human emotions.

Overconfidence

You often hear the advice that you should learn from your mistakes. But it's just as important to learn from your successes.

If a trade makes money, ask yourself why and whether you made more or less than you expected. Did you get lucky or did you follow a tried and tested strategy? Could you reckon on repeating the trade or was it a one off?

Know why you are winning, as well as doing the necessary navel gazing over your duff trades.

Desperation

The classic gambling, drinking or smoking refrain is "just one more and I'm done". If you are having a bad day in the markets, stop trading. Don't start placing high stake bets in the hope of recovering earlier losses, as chances are a bad day will only get worse. After all, you will have good and bad sessions too - just like the stock market, which can swing up on a Monday morning for no other reason than a group of professional traders are feeling positive.

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If the day's going badly at home – maybe you are being distracted by other jobs, or the kids, or an annoying tradesman in the room next door, cut your losses and try again tomorrow morning.

Boredom

Markets can be frustrating. You may be confident that a piece of news will move a particular exchange rate or stock price, and then that piece of news either fails to arrive or doesn't have the effect you expected.

Some days are just slow days in the financial markets – trading volumes may be low and news flow weak. Fine – in the words, supposedly, of Ronald Reagan: "don't just do something, stand there". Whatever you do, resist the urge to abandon your strategy and trade out of boredom.

If you can't help yourself, only trade with money you are prepared to lose 100%. And then if you happen to get lucky, see point one above!

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Published in Spread betting explained | More articles by Tim Bennett

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