Spread betting is not appropriate for everyone. Trading psychology is extremely important for successful spread betting, and not everyone has the right personality or psychological mindset for it.
Traders who consistently make profits through spread betting have developed the right psychological mindset and possess character traits that enable them to be successful. There are certain attitudes and psychological characteristics that spread bettors must have in order to master trading.
Most spread bettors are day traders – traders who place multiple trades during any given trading day, looking to profit by speculating on short term price movements in the markets. There’s a vast difference between day trading and making long term “buy and hold” investments that you may only look at a few times a year.
Consider your day trader personality
To be a successful day trader takes more than just a solid understanding of the markets. It requires having a day trader personality that, for example, enables you to handle the ups and downs of winning and losing trades, and includes the self-discipline to stick with a trading plan and avoid letting your emotions rule your trading decisions.
Key day trader traits and psychological characteristics for spread bettors include:
- The ability to accept financial risks
- Trading discipline
- Enjoying the process of trading
- The ability to react quickly to changing market conditions
Let’s examine each of these in turn in order to provide you with someday trading psychology tips.
Successful day traders have the mindset of an entrepreneur and all share one character trait: confidence in their ability to be successful at the work of trading.
It’s nearly impossible to be a successful spread bettor if you approach the markets with an attitude of thinking you are probably going to make bad trades and lose money.
Having such a negative attitude toward trading tends to become a self-fulfilling prophecy. Your expectation influences you to make bad trading decisions, which results in your negative expectation becoming a reality. On the other hand, having confidence in your ability to trade profitably can also become a self-fulfilling prophecy.
Confidence in their ability to trade successfully is what enables the best day traders to pull the trigger on opening or closing a spread bet without hesitation – a key factor in profitable trading.
Self-confidence is also key in being able to bounce back from losing trades and continue trading toward ultimate profitability.
Ability to accept risk
Losing trades are a part of the business of spread betting – not every trade is going to be a winner. Therefore, one of the fundamental rules of spread betting is you have to be able to afford losing any money you commit to it.
Spread betting is a speculative venture. If you’re not a risk taker, if you can’t accept taking a loss now and again, then spread betting is not for you.
Some individuals are simply not comfortable with any level of financial risk. The only investments they are comfortable with are those with a guaranteed positive return, such as a savings account, government bond, or certificate of deposit (CD). In spread betting, the only “guarantee” comes from your betting ability.
To be a successful spread bettor, you have to be able to accept the fact that some of your spread bets will be profitable and some will lose money. Successful spread bet traders are able to accept the inherit of loss in trading. They are able to handle losing trades without losing their cool or their focus.
Self-discipline in trading is the key to overall profitability – the ability to stick with your chosen trading strategy.
The major cause of losing money in the markets is not a faulty trading strategy, but the faulty execution of one’s trading strategy. Unless you just happen to be the luckiest person in the world, you will not make money at spread betting unless you have the ability to calmly and coolly execute your betting strategy, even when market conditions are rapidly changing.
Self-disciplined spread bettors approach trading the markets with a specific trading strategy that includes strict rules of money management and risk management, such as the practice of using stop-loss orders to limit their potential losses to acceptably low levels.
Instead, they carefully analyse market opportunities and implement their chosen strategy in a calm, rational manner. They don’t get angry over losses, nor overly excited about wins. They merely take proper professional pleasure in having accurately implemented their trading strategy to the best of their ability.
Here are some specific tips on practising good trading discipline:
- Feel good about your spread betting regardless of whether a bet wins or loses. As long as you have properly followed your chosen betting strategy.
- Keep in mind hesitating and missing out on a trade your strategy tells you to take. If it turns out that it would have been massively profitable – it will probably bother you a lot more than taking a trade that results in a manageable loss.
- Spread betting is rational speculation on price movements – it isn’t reckless gambling. Don’t forget you’re playing with real money, not casino chips. Most market trading is driven by one of two trading emotions – fear and greed – and most market traders are unprofitable.
- Learn how to control emotions when trading, whether those emotions be positive or negative. The more you can trade free of emotion and guided by rational market analysis, the more likely you are to succeed.
- Don’t let a string of wins make you overconfident in your ability. Sure, you should be thankful for the profits, but don’t fall into the trap of starting to think you’ve suddenly gained some magic ability to bet infallibly. A popular trading axiom is, “Like gasoline and matches, optimism and leverage are things you should keep far apart from each other”. Just stick with your trading strategy.
- Always maintain the attitude that you are solely responsible for your trading decisions. This includes both buying and selling, and your profits or losses.
- Don’t go blaming the market or your broker for losing trades. Analyse your losing trades to improve your trading strategy.
Enjoying the process of trading
Day trading as a spread bettor is, as previously noted, a completely different business than long term investing.
In order to succeed at it, you have to have the type of personality that enjoys the day trading process of evaluating opportunities and managing spread bets from one moment to the next throughout at least part of each trading day.
This is true regardless of whether you practice a fundamental or technical analysis trading strategy, do stock trading, commodity trading, or sports betting, whatever time frame you trade, and whether you practice trend trading, do swing trades, or use a scalping strategy. There are a multitude of day trading strategies to choose from.
The most successful spread bettors enjoy working at becoming better at spread betting and developing their own trading style, personally crafted from different types of trading.
They view spread betting as a craft or skill to be mastered over time, and they realise that there is no such thing as perfect trading. Even when they experience a string of losing trades, their concentration is not on their daily profits or losses, but instead on improving their trading skills day to day with the goal of being profitable over time.
If you don’t enjoy a day trader’s work of trying to learn from every trade and constantly improving your skills, then you’re not likely to enjoy the practice of spread betting.
But if you enjoy the work of seeking out good spread betting opportunities each and every trading day, of analysing the markets and speculating on a price move, then spread betting may be the perfect occupation for you. The best spread bettors tend to be self-reliant traders who enjoy doing their own market analysis.
A worthwhile practice is the study of market psychology, the things that drive the vast majority of traders to act in one way or another.
The ability to react quickly to the markets
Market conditions can change rapidly.
The best spread bettors carefully monitor the markets for signs of a shift in buying or selling pressure and adjust their bets accordingly.
Losing traders make the mistake of getting “married” to their trades. Once they put on a trade, they ignore any market data indications that they might be in the market the wrong way and instead only pay attention to things that confirm their original view of the market as being correct.
They continually analyse the market to see whether current conditions still favour their trading position. If they see a clear indication that their trade isn’t going to work out, they cut it loose immediately, thereby cutting their losses as short as possible.
Good spread bettors also act without hesitation, immediately putting a bet on whenever they see good trade setups suddenly appear in any of the markets they trade.
They are patient in waiting for good opportunities, but they don’t let the fear of loss keep them from taking carefully calculated risks when there’s a solid opportunity to make money in the markets.
When all is said and done
Trading psychology is essential to winning spread betting.
The consistent winners at spread betting are those who practice strict trading discipline and approach the markets with a professional, rational attitude, not one of reckless gambling. You can’t control the markets, but you can control yourself, your trading plans, and your actions in trading.
Learning to master your emotions and maintain a proper attitude toward trading the markets is learning your way to making money.
Learn the skills needed to trade the markets on our Trading for Beginners course.