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Is spread betting for fools?

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Hello comrades

So I had a little bit of cash to spare when I signed up for IG last year.  I put most of  it into regular share dealing in the hopes of 'going long', and I kept a little pot of cash for experimenting with 'spread betting'.

I took the whole thing very seriously.  I did all the IG Academy videos and I invested in (and spend many hours studying) a book by John J. Murphy on 'Technical Analysis'.  I scoured the web everyday looking for tips and trading strategies.  At times I let this get the better of me and it became an obsession.  Losing days would make me depressed for the entire day and get in the way of day-to-day life, even my family and relationships.

Of course, the whole thing is a complete fraud - but I have no reason to complain because at all times the words '81% of clients who do this lose their money' were right in front of me.  I was greedy, wanted quick gains and thought I could be one of the 19 percent if I tried hard enough.

So there I was with my resistance and support lines, my weighted averages and MACDs, my rising wedges and my triangles - I fell for it hook, line and sinker.

Now, after losing a few thousand quid, I realize that this is a mug's game - 'a fool and his money are soon separated'.  Just look at IG's 'trade of the week'.  It's almost comical how often they get it wrong.  At one point I went short on USD/Yen simply because Chris Beauchamp advised going long - and it turned out to be one of the few occasions I made money.

I don't advocate banning spread betting or anything of the sort.  The words are always there in front of you - 81 PERCENT OF PUNTERS WILL LOSE THEIR CASH.

It's gambling - hence 'daily funded bet'.  It's not trading.  You are dealing in derivatives of derivatives.  Sometimes the bid/offer spread is enormous: I remember recently for Marks and Spencers there was something like a 40 point spread, and with a minimum bet size of £1 that meant you needed 40 points of movement in your favour just to pay IG's spread costs.  Talk about 'odds are against you'.

Obviously IG makes most of its money from spread betting and other professional activities.  And I know a lot of people enjoy day trading and spread betting.  I sure did and got some enjoyment out of it.  But now I wish I'd taken the cash to Vegas instead.  My chances of coming home rich would have been far greater and I would have had a much better time in the process!

David

Edited by dmedin
typo

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Thanks for that comrade.  Sarcasm is the wit of champions!  I take it it's working out for you then - you're one of the 19 percent. 😉

Comparing it to a four year university course is particularly amusing.  I will treasure that one!

Edited by dmedin
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Its really strange how difficult it is

When starting out you think you should have 50% chance of make a profit buy or sell

and if you buy in an uptrend it should be over 50%

 

but somehow its ends with stopping out with a loss

 

 

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@dmedin,

In all of the humour added by @Caseynotes there is a very important point. A point that must be understood. 

First of all, spread betting is merely a vehicle to use to get to a destination. There are other vehicles available and it is your personal choice which vehicle you choose. For example if I want to invest in a company for the long term then I use a different broker to IG. If I want to trade a trend either 'long' or 'short' then I use IG's Spread Betting account. Why do I use Spread Betting? Well the two main reasons are the use of leverage and the other is that profits are free from Capital Gains Tax making it a tax efficient way of trading. 

Now the two reasons I have highlighted are totally irrelevant if you are either a bad trader or a good trader using a bad trading strategy when using Spread Betting. I will try and identify strong trends to trade using Spread Betting. Trading with the trend is crucial on Spread Betting. The stronger the trend the better. So it is not just about spotting a trend. 'Trend Strength', 'Momentum' and other indicators have to align to try and give you the best chance of a profitable trade. 

The amount of traders I have come across on just this IG Community alone that do not have the following is staggering:

  • Trading Plan
  • Trading Strategy
  • Trading System

Now without the above the odds are going to be against you and the probability of success diminishes. Also it is not just above having the three points above but they must be effective and efficient in trading the markets.

Spread Betting is not gambling. It is merely a trading platform. Gambling is using trade capital to trade without an effective trading plan, without an effective trading strategy and without an effective trading system.

It is the individual that gambles not IG's Spread Betting platform. An ineffective trader could invest thousands of pounds on a share in the hope that it recovers or goes up. If the share price continues falling and that trader loses thousands of pounds then it is the trader who is the gambler and it does not matter if they used a traditional share broker, invested via an ETF, bought a mutual fund or traded using a CFD or Spread Betting account. It is the actions of the trader that is the issue and at fault. 

Once you have a defined trading plan, a clear trading strategy which can be executed and a trading system capable of delivering the objectives of the trading plan then you will decide which platform or structure to use for your trading / investing. So the platform that you use will be dependant on your trading plan, trading strategy and trading system. 

Now guess what? If you have no trading plan, trading strategy and trading system then how can you pick the most effective trading platform to use? How can you come to the decision that a Spread Betting account is better than a traditional Share Broking account? How can you determine that CFD is better than a Spread Betting account? 

@Caseynotes, put the point across in a lovely humorous way and I have tried to put the point across in a more serious way and hopefully both will resonate with most types of readers here on IG Community. 

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@Kodiak,

That means you must look at your stop loss strategy. If you are trading a strong trend (volatility occurs in all trading assets) and if your stop loss is too tight and you keep on getting stopped out then the winner is the broker not you. 

If you have selected the correct trend which is strong and you are trading with the trend then you must have an effective stop loss strategy. You may want to revisit your risk management and have a look at position size, how much you are willing to risk on each trade based on your risk tolerance and try and come up with a more effective stop loss mechanism that eliminates this issue but at the same time does not increase your overall losses in your trading account. 

I must make it clear that it is about trading the strongest trends (which tend to be bubbles, hype, frenzy, speculation) etc. I love those types of trends and one must not fear them but embrace them. They are the trends that will make the biggest profits. The weaker the trend you trade the harder it is to have a sound stop loss strategy as volatility will stop you out. It is how your trading system deals with volatility which will be key. 

 

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You must understand that the market will do anything.

The only certainty is your strategy and risk reward set up money management.

Remember all technical indicators are laging indicators only show what's happened in the past. You must establish a few with the leading indicators and market sentiment and just use technical indicators for entry and. Keep it simple 

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I don't know what expectations you had when you started David, mine were to make a lot of money and retire.  That didn't happen.  After a while I stopped trading, took a step back and looked at what was happening.
I had none of the stuff mentioned above which are needed for success.  What I did have were lots of trading websites, discussion forums, tips websites, news feeds and so on.  A confusion of noise with no structure and no plan.

If you decided to open a business you would have a business plan.  You would probably open a business that you knew something about and had lots of experience in, or could hire people to fill the gaps.  You would know how much things cost, how much you could charge, and what the likely market would be.  You would do a lot more than that and still might fail for any number of reasons.
Spread betting, or any other form of trading is a business.  You need to know what you are doing, you need to do it consistently and you need to keep monitoring your performance.  To make money you need an 'edge' - which is simply a strategy which over the long term gives you more in wins than losses.  It doesn't really matter what that edge is, just that you have it and trade it consistently.

You do not need, and should avoid, trading on anyone elses advice.  As I write I have a long position on Gold.  I could explain why and someone might read this tomorrow, think it sounds reasonable and decide to buy too.  I mogt have sold by then and gone short.  My advice would be worthless.

If you want to make money here's how.

  1. Open a demo account, with a similar amount of funding to what you would have in a real account. 
  2. Review what you already know about trading strategies and pick one that you think you understand.  Research this and make sure that you know all of the details. Does it apply to all markets?  Does it suit short term or long term trading?  Why do you think that it would give you an edge?
  3. Write the whole plan down - preferably with a checklist of all conditions that need to be in place before you take a trade.
  4. Start trading it with the demo account.  Keep doing that for months if you need to until you always stick to your plan.
  5. Review the results.  Did you stick to the plan?  Did you make enough demo profit for it to be worth your while?
  6. Keep going with this until you are sure, then start with a small trading account and see if you can still stick to the plan, and make money.  As you succeed you can start increasing trade size or adding other strategies but slowly.

Remember that the reason for doing this is to make money.  If you can increase the value of your trading account by 5% in a year you are doing better than most savings accounts.  3% in a month doubles it in 2 years. 
Big wins are for adrenalin junkies.  Steady consistent wins are for millionaires.

Final thought:  Spread betting is the hardest 'easy money' you will ever make.

Michael

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It's taken me over a year of demo account trading to "perfect" a strategy that is proving profitable on a weekly basis... I'm in this for the long run, so really no rush to get into the markets, but I think I am just about ready to enter the "real world".

One of the major lessons I learnt over the year (beyond what has already been mentioned above), PATIENCE! Literally sitting watching the ticker for the right time to enter the trade has been key, you may miss a trade or two, but in the long run its pays to see confirmation in trend before taking on the risk.

Oh, and when I say a year, I mean literally every day of the week for a minimum of 2 hours (excluding videos on yourtube, audio books, reading about trading etc).

Edited by AbDXB1345
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@AbDXB1345,

You will not have perfected a strategy. Trust me. Even the professionals do not have a perfect strategy. 

What you possibly may have is an effective strategy based on your level of risk and money management.

The demo account is one thing but trading in the real markets is a different beast altogether which I am sure you are about to experience.

If someone said to me that your trading strategy would make a profit every single week or a trading strategy that would make a profit some weeks but losses on some weeks then which trading strategy would you select? Now if in the second example the profits far exceeded the losses and those profits were greater than the first strategy, now which would you pick? The point I am trying to make is that making losses is part of trading. One must accept them. Of course one wants to minimise those losses but they are part of trading. 

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Hi Demedin,

I wouldn't give up, but taking the advice of someone who has made all your mistakes might help. I understand the confusion which is out there, all you have to do is type 'forex' into a search engine and you will forever be bombarded with Jeff Bishop videos and Tim Syke's next big thing.  I would recommend to filter out all of that noise. Ask yourself what time frame you want to trade or are able to trade. Find a guru whom you think might teach you to trade that time frame.  Do not think that they are all charlatans, although many of them are (probably 81%), there are some earnest educators out there who can condense all the stuff you can find for free and apply it to a strategy. Stick to your strategy and focus on becoming a good trader, get your trading right.

In my limited experience, making a fast fortune is massively unlikely, unless you have one to start with. 

 

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think of trading like a race. Most people can drive, but those who are winners are the ones who put time and effort into practicing their starts, practicing the course, learning about the other drivers strategy, reading up about their car, talking to the mechanics, putting in the time and effort to lap their practice track day in day out.

the winners also are never going to be the ones who get in an F1 car for the first time after passing their Driving Theory test ... scale up power (leverage) and your opponents (assets)  

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On 13/01/2019 at 11:46, Kodiak said:

Its really strange how difficult it is

When starting out you think you should have 50% chance of make a profit buy or sell

and if you buy in an uptrend it should be over 50%

 

but somehow its ends with stopping out with a loss

 

 

 

Thinking you have a 50% chance (since the price can go only up or down) is a big mistake.

When you're a little fish in a tank with big sharks you don't stand a chance.  BUT ... the sharks need something to feed on ... HENCE the encouragement to bring 'sheep to the slaughter' and the enchanting claims for the magical efficacy of 'technical analysis' (note: IF ONLY you will SPEND MONEY on MY BOOK / MY COURSE - say all the pros) ... and the 'idea' that you can become profitable after four years of losing your money ... LOL!

Edited by dmedin

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Something like that @dmedin, though mostly the sharks feed on each other, the dumb money is merely a morsel. Hence, as in the Dante quote, the first aim is survival, that is to say not losing money. It's funny how everyone who starts trading is thinking about making money rather than not losing it, as you say in the OP, the stats are there for all to see.

So if they make the first goal not to lose money and concentrate on that then they probably wouldn't even start on that long road which is so time/money consuming of searching for the perfect indicator/TA methodology combo and instead just stick to the basics, they would likely be much better off.

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I just wanted to point out something else for anyone who might be interested, with respect to technical analysis, the following is from Reuters one day after IG recommended going short on gold:

Pessimism about global growth drove down world shares and commodity markets on Tuesday and left investors seeking refuge in the dollar, government bonds and gold.

https://uk.reuters.com/article/us-global-markets/imf-pessimism-trade-tensions-sickly-stocks-idUKKCN1PG013

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@dmedin,

At the moment any short on Gold would be a short term trade as for me there is no trend reversal confirmation so for longer term traders it would be extremely tricky to go short on Gold right now especially whilst it is above the $1280 level.

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Quite right @dmedin, we have been discussing that very point in the Gold thread and quite rightly TA can't be taken in isolation. Fundamentals (new news, new data) are the market drivers, TA helps explain how price might travel and where the eventual destination might be on a chart but it's the fundamentals that gives price the push and the direction.

In the IG 'trade of the week' short gold the point was that upward momentum had petered out and sellers were pushing price back and if buyers did not rally at support (1270) and the level broke then the sellers have gained control and a short could be a good trade at least for the short term.

As it happened buyers did protect 1270 and shortly after that the IMF report (new news) gave the buyers an added boost sending price back up into mid range.

 

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yeh @TrendFollower,  the lower IMF expectations for global growth means bets are coming off oil (as demand expectations are reduced), hampering stocks and indices, and giving gold and USD a boost.    

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This could potentially see a sell off in equity markets. I am not sure if what we witnessed recently was just a monster relief rally or if there is indeed some substance behind the recent rally. I guess we are about to find out in the coming days and weeks.

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Until something new comes along. The IMF, it must be said, don't exactly have a brilliant record for forecasting but it's the latest bit of news and so bound to cause some positioning readjustment.  

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Posted (edited)

Well another recent example ... there was a video suggesting to go short USD/YPY because of a possible emerging head and shoulders.

Now I am not an expert, have only been looking at TA for 9 or 10 months now, and I'm definitely a B book client (loser - lol) but I thought from reading John J. Murphy's book that H&S takes time to emerge and you need to factor in volume as a confirming signal. 

So you imagine my surprise when I see people finding H&S forming in the space of a few days or hours and they don't even bother to analyse the volume ... USD/YPJ is up quite strongly today and seems to me to be in a kind of symmetrical triangle formation right now.

With options you pay a premium and your losses are limited to the premium, but with spreadbetting you get cleaned out fast when the price goes against you.  I'm really surprised that SB is considered fine for retail clients but we don't get to trade proper options.  It's almost like nanny state thinks we're all stupid, it's okay for us to lose money on simple betting as long as we don't go near the big boys' playground.

Edited by dmedin

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Ah @dmedin,  I can see where you going wrong there. Too much faith in Technical Analysis, if the markets were scientific it would all just fall apart so relying on scientific tools will inevitably lead to confusion and sorrow. TA is not about rules, not even guidelines really, more just suggested possibilities, which is why you will find people using techniques very differently producing a multitude of signals that are all themselves just equal possibilities.

In books and on SM you will see loads of examples of technical patterns working out but I don't think I've ever seen a book on technical patterns not working, don't suppose it would sell very well really. You will find plenty of commentators who have swallowed TA books whole and then regurgitate everything back up onto a fresh chart, all you will see is a godawful mess.

Best advice I could give is to stick to Wykcoff and supply and demand, the basic mechanics of a market.

Most people prefer SB over options because of the greater level of control, with SB you pay a stop loss which will get you out of a trade as soon as the trade turns against you. But as demonstrated in the SSI thread, 80% don't seem be able to use this basic tool competently.

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@dmedin,

I agree with @Caseynotes completely. I see time and time again traders using TA in overkill mode. Using indicators which is part of TA is telling us what has happened in the past. It cannot guarantee what will happen in the future. I use indicators but I also use a number of other factors when determining whether to enter a trade or not and when to enter a trade. 

This merely supports my decision making but using TA does not guarantee the trade will be profitable. Certain indicators may increase the odds and place the probability in my favour but that is all. I believe experience of the markets / assets you are trading, knowledge of the same, gut instincts, both fundamental and technical analysis along with many other things will help make an informed trading decision. 

Using TA does not guarantee the trade will profitable. 

 

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What a great read, though i didn't get thru it all.  Her'es my bit.

I was demoing for about 1 month back in Feb.  I tried several Demo platforms before settling with IG.  I made a lot of losses and some gains.  By the end i thought I was about 50-50 but was curious about the Real World, so opened the Live account.

Long story short, I'm down £400 in 3 weeks from a £1400 account.  Not great; in fact I'm at a loss.  I've mostly traded Spot Gold, so after a few £25 losses I went back to the Demo to make 8 straight wins and up £300 in a few hours using the same account balance.  I thought I'd cracked it.  Went back to the Live account with New Improved Strategy and lost £200!!!!!!!!!!!!!  I can't win.  Spot Gold is ruining me.  I watch.......It moves in a direction, i go in, the chart stops moving, it goes the other way  90% of the time! if not 100%.  My own Buy in Price becomes the Resistance Point going either Up or Down.  I was going to video this fact but figured it was all in my head.  It's not.  My Buy in Literally becomes the point where the chart will reverse, hit the support and come back down to my Buy in and go back again.  I sit in trades fighing gor £15 for hours....Then sell, then it breaks.

This can't be real.  I can't be this unfortunate?

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33 minutes ago, nit2wynit said:

This can't be real.  I can't be this unfortunate?

@nit2wynit,  it's not unfortunate, that's what's supposed to happen, the market is always trying to trap the unwary and inexperienced, why wouldn't it when it's so easy to do.

So you're found that the market moves in fits and starts even when the overall progression is one way, why would it do that. A bull trend is made up of big players buying then stop buying, take some profit, let the market fall back a bit then start buying again, they can time it anyway they want. You are seeing the buying, you are waiting a bit just to be sure, then jumping in just as they stop buying.

Once you have bought in you are totally dependent on having a big player come in after you and buy the market up and carry you along with it, but your timing/execution is all wrong.

Also, you have discovered that demo is not like the real thing at all, the market moves the same but inside your head it's all different.

So two problems identified, what to do about it.

TO BE CONTINUED

 

 

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Yes Casey.  My learning has moved from charts to myself and what I am doing wrong correclty 100% of the time.  As I figure it out, I look forward to the 100% right state of mind.

I am correct in my mistakes 100%.  I like the odds. :D

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