Throwaway comments like ‘buy low, sell high’, though technically accurate, are often extremely unhelpful; firstly because they state the obvious and secondly because it’s not always so easy to tell when entering into a trade whether a stock is truly at a ‘low’ or ‘high’.
Trading often shows us human natural optimism; a surprisingly large number of traders seem to stick with a trade well beyond what might be considered a reasonable point; simply because they believe that the situation will reverse itself.
With Spread Betting one does not trade the product itself, but instead trades the movement of the product. The larger the movement of a stock in favour of a trader’s open position, the greater the profit they will make. On the other hand, the further a stock moves in the opposite direction to a trader’s open position, the more loss they will incur.
Prior to entering a trade, traders need to decide on a point at which, if things are not going well, they will cut their losses and exit the trade – and it’s a good idea to stick to that decision instead of simply changing those parameters if things start to go wrong. While it is certainly possible that at some point the value of the stock in question will start to go the other way, there’s no certainty that this will happen soon enough to prevent traders from using up all of their available funds.