Trading Psychology vs. Trading Strategy

LONDON, December 23, 2011 /PRNewswire/ --

Psychology can have a huge impact when trading, especially with regards to financial spread betting which is a leveraged product that can result in losses greater than the initial deposit. This is why a trading strategy is essential to help achieve more profitable trades without cashing in early or running losses for too long.

When spread betting, it is of vital importance to have a proper strategy in place for entering and exiting your trades. However, it is also important to have the right trading psychology. The best trading strategy in the world will fail if you do not have the right mindset to back it up.

As stock prices fluctuate at an increasing rate, trading psychology can panic traders into cashing out quick or to continue running their losses in the hopes that the market will recover. To counter rapid real-time fluctuations in the market, a disciplined spread betting strategy is an important part of separating emotion and spontaneity from trading. This helps traders to approach the trading platform with a calm, clear head and allows for more strategic management.

Sandy Jadeja of spread betting provider City Index believes part of the problem is the way in which people are hard-wired from a society that works differently to the trading platform. "For example, in the outside world we want to buy when goods are cheap. In the markets there is no such thing as cheap. If a market is falling, it is weak and you should sell. If a market is rising, it is strong and one should look to buy.

"But the classic mistake traders make is they buy into declining markets trying to catch a falling knife and sell too early, missing a potentially big profit. This type of thinking may work when shopping in a mall but it is dangerous when trading."

Even something as straightforward as a spread sheet to outline and calculate margins, profits, losses and closing orders alongside the daily progression of the markets could not only help minimise losses and improve profits, but also be used to forecast future market movements.

As part of successful trading it is important to constantly test and refine strategies while confidently seeing them through to a clear conclusion. For this reason many new traders start out with free demo accounts while more experienced traders will also use demo accounts to develop new strategies without incurring losses.

However, there is a danger of traders relying too heavily on charting software and other innovations to make their spread betting decisions for them. The most important ingredients to successful trading are experience and knowledge of the markets.

Being well informed can make all the difference between making a profit and taking a loss. When spread betting on a market, traders need to know how the market moves, what affects its movements and if there are any forthcoming announcements which may spark a change in direction.

While profits, losses and acquisitions of leading businesses are often reported in the national papers, there is a wide range of daily market commentary available online, from blogs and forums to financial newspapers and resource websites. Traders should make use of the resources available to continue developing their knowledge and understanding of the markets.

To learn more about building the right trading strategy and psychology, visit: http://www.cityindex.co.uk/learn-to-trade/ at City index.

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for details.

SOURCE City Index