Spread trading can be incredibly profitable and the possibilities to make vast amounts of money with correct trade management allow many traders to dramatically improve their lifestyles. The numbers of markets available through any single spread betting platform mean that there are literally thousands of possible trade set-ups each day. Whatever strategy you employ to spot profitable trading opportunities, one of the keys to becoming consistently profitable is the ability to apply stop losses and stop wins effectively with each trade.
So What Are They?
Stop losses can, and should, be applied to every trade that you open. They work by providing a safety net, or maximum loss level, in the opposite direction of your trade should things not work out as anticipated. Stop losses are simply opposing trades to the position that you take and can be calculated in different ways; including analysis of how much you can afford to lose on each trade and also where significant levels of support and resistance exist in the market. Stop losses should be placed close enough to the opening price to limit losses to their absolute minimum whilst not suffocating the trade and stopping it out to early.
Essential Items for Your Budget
Stop losses are essential for correct money management and to allow your account to grow consistently. Most successful spread betters follow strict rules for entering and exiting positions based on their money management techniques. One of the best and most widely used of these is the golden 2% rule; not risking more than 2% of your trading account on any single trade. This sounds very small but it will make sure that your account never gets hit with a single loss which will prevent you placing any further bets. This kind of financial control would mean that your stop loss is placed to risk no more than the 2% value of your account.
What About Stop Wins?
Alongside stop losses traders can also use stop wins to make sure that they close their positions profitably. Every trader knows the feeling of holding on to a winning position for too long, becoming greedy and expecting it to keep rising only for it to close out at break even or at a loss. Stop losses can be used with stop wins here to both protect profits (for example by moving the stop loss as the trade becomes profitable) and also by pinpointing a position in the market where a profitable trade will close out automatically. Stop wins are essentially the same as stop losses but instead of limiting losses they lock in profits.
About author: This article has been written by Tristan from www.spread.co.uk and he is interested in how you can minimise losses and secure your profits with spread betting.