If you’re tired of throwing what little money you have spare down the drain chasing spread betting systems that don’t work, you’ll be pleased to read that you can put an end to that nonsense for good. Right now. And I’m going to tell you how.
If you’re like most readers of my blog, you’ll probably want some kind of credentials or history or something else definitive from my past that proves to you that I know what I’m talking about and that the system I’m going to tell you about here is authentic, right?
Well, I don’t have it, sorry. I wouldn’t blame you if you left right now and never came back but if you did that, I guarantee you’d miss out on the most important lessons about trading that you’ll ever find.
I don’t have a 10 or 15 year trading history of 20% return per year or a profile picture showing you me and my rented bright red Ferrari or even a company based in the Cayman Islands selling self-help and trading courses. Tough luck, I know.
But what I do have is a very simple, continuously developing perspective on life and trading that has enabled me to turn £500 starting capital into £3500 in just 6 months and will eventually lead me to complete financial freedom.
The Simple Spread Betting System
- It’s simple because it needs no news, no commentary, no fibonacci ratios, no complex computer systems and no annual subscription to my share tipping service (no, I don’t have an annual share tipping service, before you ask :-)) to work.
- It’s continuously developing because like you, me and the entire human race and everything else in the universe, it is in a constant state of movement, and changes every moment as other events cause knock-on effects that ultimately work their way back to the markets.
With this system, I am walking the path to a healthy, balanced life of complete financial freedom and personal wellbeing and I hope you’ll find it both informative and inspiring.
You don’t have to be a baggy-eyed, super-wealthy trader living life large in a high-rise modern apartment and working all hours to catch the “latest market moves” to live your life as a trader.
The system that I will show you here puts your mind and health first, before even thinking about the trading, and will show you how to tap into your trading intuition to make decisions on markets that you simply wouldn’t be able to make if you were just using news and commentary to do so. News, commentary, tips and anything else you go looking for is just ‘noise’, and will interfere with your mind’s ability to make it’s own decisions.
Before I share the system with you, it’s important that you understand where I’ve come from and I’d encourage you to read about
Once you have scanned these posts, you’ll have some good info on the journey I took to get to where I am today and some good background prep for what I’m about to show you next. Hopefully the system will help you skip points 2, 3 and 4 above and allow you to jump right into profiting.
The Trading System That Always Profits
Before I explain the system, it’s important to lay down the framework that I’m working to. My system is based on several key assumptions:
- I am not smarter than the market. It is completely efficient.
- Everything I’m thinking of, the market has already priced in.
- Neither Technical Analysis nor myself can predict future prices.
- I am guessing and I will ‘lose’ more positions than I ‘win’.
- There is only 1 indicator worth following and that is the price.
You’re probably thinking that if the odds are so stacked against you, how can you possibly trade profitably?
The answer is fairly straightforward.
Although I will ‘lose’ more positions than I ‘win’; when I do ‘win’, I will ‘win’ more than I’ve ‘lost’. Confused? I’m not surprised.
Let me try and explain a little better. One way you could alleviate some of the confusion is to stop viewing the trades as wins or losses but, rather, as costs (losses) and revenue (wins).
You have to know that to trade profitably you will have costs. These costs should be relatively fixed and based on your total capital available. This ‘relativity’ is based on your available capital, which may fluctuate during the course of a month. You should never pay more for a position than you’re budget allows
Budgeting for Profits
To ensure that you have enough capital to trade profitably, you need to set yourself a budget for each cost (trade). This should be a % of your available capital. For example, if you have a starting capital of £500, you should set yourself a cost cap of £25 per trade, which is 5% of your total capital available.
I chose 5% but you could adjust this figure to suit your own appetite for risk.
If you stick strictly to this 5% cost rule, you will be able to buy 20 positions in the example above.
You Will Lose More Trades than You Win
But remember, trades are costs the moment they are opened. Those that go your way and result in revenue will be fewer than those that simply cost you.
The secret to it all is to ensure that the revenues you bring in exceed your costs.
Duh?! Stating the obvious there, Lee, aren’t you…?
Well, continuing on with our example above and the £500 starting capital, let’s examine how this would look in full swing, with 20 positions open. If 20 positions were opened, it means you’ve spent your entire starting capital of £500.
If you were running a traditional business, this would mean you’d have £500 worth of stock or goods to sell.
To illustrate a very important point (possibly the most important point you’ll ever read), let’s assume that you’re going to lose 15 of your trades and win only 5 – a success rate of 25%, in other words.
Your success rate will of course depend on how good you are at opening good positions and I’ll cover that later but for now, in this example, because your ‘winning’ trades don’t cost you anything, your total cost would be £375 (15 x 25 ‘losing’ trades).
The 5 remaining winning trades will need to bring in more than £375 revenue between them to ensure you make a profit.
How can you achieve this?
Let’s look at a share chart to help illustrate how this can be done.
In this example, you can see the share price has been trending upward for the last 3 months before settling into what looks like a trading range (indicated by the waves of downs and ups between September and October).
Going back to our framework above, I have to assume that this share price knows everything there is to know about Marks & Spencer and is reflected in the chart. I’m not smarter than the market so the only thing in this chart of any relevance to me is how the price has behaved in the past and what it is currently doing now.
It looks like it could start back in its upward movement because the last few days have shown a consistent price gain. If my guess that the price is trading within a range, then this should see the price rise.
Of course, remember I am completely guessing here and I can’t see the future but what is important and exact is that if I guess wrong, I am only going to lose 6 points. This is identified by the recent lowest low of the share price, which is only 6 points away. This is all I am guessing the share price will fall if it moves against me. If it goes below this then it is likely it will drop further and I’d be looking to short instead.
So, if this position is going to cost me 6 points and I have £25 to spend, this means that I can risk £4.16 per point. If the position moves against me, I will lose £25.
Now, what is important is the upside potential, or revenue potential, of the market.
In order to ensure that a 25% success rate will cover losses, it means that I need to bring in revenues of at least 3 times my cost in each of my ‘winning’ trades. Anything above 3 times my cost for each position and I will end up with a profit.
For example, in the Marks & Spencer chart above, the upper limit of the price range looks to be around 380. This is 19 points above my entry point. This means that my cost is 6 points and my potential revenue is 19 points. 19 points is 3.17 times my cost – a very small profit.
If the price were to rise to 385, which looks possible if the range is broken (again, I am guessing, but there is price evidence that shows it has been broken in the recent past), then that would mean 24 points of revenue, which would be 4 times the cost and a revenue of £100 on the position.
If this outcome was duplicated in all of the other winning trades (5 in total), then that would result in total revenues of £500, less the cost of the 15 losing trades (£375), and a resulting, final net profit of £125.00.
The big trick, once you understand this concept, is to choose the right positions to open that give you the greatest probability of providing you with the cost/revenue ratio that will always result in a profit for you.
In the next post I’ll talk about how I go about finding these positions and what you can look for to try and find your own.
If you can’t wait until then, follow me on twitter where I post my entry points as I enter them in realtime.