3. Lose short, win long
One of the reasons for thinking about how much you can afford to lose before you think about how much you want to win is that you’ll lose far more times than you’ll win.
You can’t win them all, conventional wisdom says. But, in truth, you won’t even come close.
The trick here is one we can borrow from city traders (the successful ones, not the ones who short building societies until the world goes into depression).
If you’re going to lose more times than you win – and you are, as am I and everyone else – the thing to do is make sure you lose small amounts and win big ones. Lose short and win long, in other words.
If you’ve made a bad call, close your position and get out. Dust yourself down and get ready for your next bet – before you lose too much of your precious capital.
It’s hard to do – one of the most common observations stockbrokers will say about their retail (ie, general public) clients is that they hang on to their losses too long and sell their successes too early. Nobody wants to face defeat – which is why we hang on to failing stocks and shares, hoping they’ll recover and prove we were right all along.
It’s bollocks. We should cut loose, free up the money that’s tied up in them, and re-invest it somewhere we’ve got a chance of winning.
Similarly, in our rush to declare ourselves winners, it’s so tempting to sell winning shares and bank the profit. But why? Surely it’s better to leave the money where it is and cream as much profit as possible?
So, if you’re betting on a live football match, or something else offered by a sports spread betting firm like Sporting Index, don’t worry about closing losing positions early. But, if you’ve got a winning one, let it ride.