A Very Important Spreadbetting Lesson
Less is More. That’s a saying right? Well in Spreadbetting it’s actually a really useful saying because i’ve lost count of the number of clients i’ve worked with that were being too damn greedy by risking more to get more, that they were practically pouring their money down the drain.
I know that this post might sound like i’m ranting. But to be honest, I see it an awful lot, and I genuinely want to help people do better.
Mike, a client of mine (who has given me permission to post this story) recently hired me for a 1 day consultation where we sat down together to look at his trading record, identify where he was going wrong and to fix some issues.
One major underlying issue however was that he was stressed out. I could tell from his language. Phrases like “I hope this one works out” or “I bet this one is another loss” were common with Mike.
I could tell immediately that the guy was petrified of another losing trade coming.
Let me tell you this now. If you feel this way, you will never be profitable! Never!
Does your mental state affect your trading???
OF COURSE! It is EVERYTHING. This is a mental game. If you don’t believe that then you are misguided.
Your state of mind has everything to do with your results.
Mike had a huge fear of losing his next trade and it meant several things for his trading.
He was jumpy, and wanted to exit as soon as he saw 1 or 2 red bars appear. No exit signal had appeared, but he was desperate to get out at the first sign of trouble. He also wanted to bank his profits the moment that a trade started doing well, for fear of losing them again. He was so anxious he was staring at the screen all day, almost begging his trades to be profitable.
So this was the first thing we addressed because if you aren’t in control of your emotions you won’t make consistent profits. This is how the conversation went…
CC: What’s your maximum risk per trade?
CC: Ok, so why did you pick that figure?
MD: I don’t know really, just felt right.
CC: Okay cool, thats fine. So how would you feel if you lost £1000?
MD: Gutted. I couldn’t lose that much. It would make me feel sick.
CC: So what happens if you go on a 10x trade losing run?
CC: You know it can happen as you’ve done the backtesting.
CC: Yeah. Exactly. If you feel that way about it then after 6-7 losing trades you’re going to be stressed to the eyeballs at potentially -£600 down.
MD: Yeah, I was on an 8 streak recently and it was horrible.
CC: It shouldn’t be. Trading should be fun. You gotta bring it all back in and make it fun again. You’re too stressed out about the money. You either need to stop trading, or lower your risk per trade.
MD: Won’t lowering it reduce my profits?
CC: WHAT PROFITS!?!?!?
MD: (laughs) Yeah ok. Fair point.
CC: Yes….it will reduce your potential profit per trade, but you have to look at the bigger picture here. The bigger picture being that you are killing trades prematurely, you are killing winners before they get very big, your losses are outweighing your profits and you are choosing not to take signals you should be taking for fear they’ll be losing trades. You cannot and will not ever win that way. If you reduce your risk, to something you can stomach, then you’ll shrug those losers off each time. You will hold on for winners easier and you will take the next signal because you aren’t as emotionally attached to your money. You’re the trading equivalent to Gollum right now.
MD: So your saying reduce my risk per trade, which means its easier for me to stomach the losing runs and stay in the game for the big winners that pay them off?
CC: Exactly. If you risked £25 per trade and went on a 10x trade losing run and lost £250, how would that feel compared to £1000?
MD: Much better! I could handle being £250 down.
CC: Exactly. And you have more chance of actually making a profit this way. Once you iron out the bugs and become consistent, THEN you raise your risk per trade! Not the other way around.
MD: Makes perfect sense.
CC: ……..I know. 🙂