Losing days

I'm going on about the book, "High Probability Trading" again, so if you don't like it, turn away now!

I keep finding bits in the book that really resonate with me. Today I found a bit about handling losing days. The book talks about how people have a plan for winning days, e.g. making £X a day but have no plan for losing days. The problem comes along when you hit a losing day and then end up chasing losses and over trading trying to hit your daily plan. Link suggests: "...when trying to figure out how much they will make at years end, they kind of forget to calculate any losing days. They assume they can consistently make the same amount every day and totally ignore the losing days. The reality is that they will probably have about the same number of losing days or more as winning days, and the losing days can tend to be worse than the good days".

He continues, "If you are going to have goals for winning days then you should also have goals for losing days and they should be less than you hope to make on a winning day. If $400 is your goal on the upside, you should have a goal of not losing more than, say, $300 on a bad day"

Blow out

In trading terms, blowing out is when you go bust and blow your bank out. Not a pleasant thought, but something that happens more often than you'd like to think and often spells the end to a trader. If you blow out, you don't want to play anymore and your confidence can drop to rock bottom. It takes a lot to pick yourself up, know it is just a set back and start again.

Marcel Link, the author of "High Probability Trading", the book I'm currently getting into, says this about blowing out: "I know people don't want to hear this, but most of the best traders have blown out more than once before becoming the best. I always thought, 'yeah, but not me'. Well, it happened to me more times that I care to remember."

That kind of made me sit up and take notice. When I had made losses, some bigger than I had expected, due to thinking I knew best, I had, in the back of my mind, the thought that if I blew it and lost my bank (as small as it is) then I was not cut out for trading. I've had comments on the blog, when I've mentioned taking a loss or making a mistake, telling me to quit and give up (although not usually expressed so politely!). Well, in the book "Market Wizards" (on my recommended reading list at the bottom right hand side), you find that blowing out is a common early trait among almost all the best traders. As Link says, "It comes with the territory and is part of the training process". He also says, "Blowing out can be a valuable learning experience for a committed trader. It is time to regroup and find out why you lost. The answer will almost always be overtrading or being undercapitalised, but traders need to learn it for themselves"

The bit that really struck me most was when he said, "A word of warning: Most of the time it comes after a good winning streak". This resonated with me, as the biggest losses I've had have always been after a winning run.

High probability

I'm currently reading the book, "High Probability Trading". I first heard of it through the Trade on Sports blog recommended book list. Our book tastes seem very similar, so I thought I'd check it out and I'm glad I did. So far, I'm only about a quarter of the way through, but it has been really good so far. The first part was quite re-inspiring. It talks about, what the author calls, the cost of learning. He says, "From everything I've ever heard, read and seen, a trader needs about 3 to 5 years to get through the learning period. During this time in which he is learning and honing his skills, a trader will be paying his 'tuition of trading' the same way lawyers, chefs and doctors pay to learn their craft". Okay, so 3 to 5 years wasn't that reassuring, but I found that looking at early losses as tuition fees was.

Another piece of advice that I liked was to concentrate on PPC, which means "preserving previous capital". He says, "forget about making money, just try as hard as possible not to lose any" and "The key to being a winning trader is to not lose a lot when you lose. If you cut losses, the winning trades will take care of themselves".

Beliefs

According to NLP (Neuro Linguistic Programming), your behaviours in an activity are affected by the beliefs and values you have associated to it. As an example, say you want to become better at public speaking (behaviour) and you take some classes, but despite all the training, deep down you don't believe you are any good at public speaking, then when it comes around to standing up to speak, your body will respond to your beliefs and your voice will waver, etc. Then, when you get some feedback, you'll filter it through those beliefs, e.g. if there are two people both of whom are equally talented but one has the belief that they are a great public speaker and the other that they are not, then if they both get told that they are really good, one will believe it and use that comment to reinforce their belief further, whereas the other won't believe it and will probably find a way to use it to back up their belief that they are not.

Okay, all well and good but what has this got to do with trading? Well, part of your success or failure is related to the beliefs you have. If you don't believe that you'll ever make a profit or successfully trade at a new level of stake then you will find a way to make that happen. This is where self sabotage appears. Where you do something stupid, knowing it's stupid, but do it all the same. NLP offers lots of processes for changing beliefs but sometimes, just realising that a false belief is present, can help bring it to the surface so you can start breaking it down and challenging it.

How to trade on Betfair vid

I've mentioned it before, but after Adam from racing traders posted a comment on the blog yesterday, I thought I'd check it out again!
It basically shows a 5 hour trading session by Adam Todd, condensed down into 38 minutes. There are 8 chapters which show the best and worst trades he made that day, accompanied by his commentary which cracked me up several times. Have a look.

What is this blog about?

It's probably a bit late in coming, but I thought I write a post about what this blog is meant to be about and why it is called what it is.

I first heard about Betfair and the idea of bet exchange trading from my father. He was always interested in anything new and interesting around the area of value betting, etc. He told me the idea behind Betfair over the phone one day, after he had read through a booklet about bet exchanges. I listened and found it interesting but it didn't really appeal. A year or so later, my father sadly passed away and I discovered the booklet as I was helping sort through his books. I read it on the spot and wanted to know more. I had dabbled with horse racing years gone by and the idea of being about to lay appealed. I googled the internet, hungry for info. It was here that I discovered the story of Adam Todd from Racing Traders (you can read his story on their site). He had started with a bank of £200 and turned it into £100,000 in a few years. I was inspired! I also found the blog of the betfair trader who was trying to pay for his wedding through trading on the betting exchanges (and has done. Well done man). The story of going from £200 to £100,000 was where I got the blog title (not too original, but it was the original inspiration). I thought, if these guys can do, why not have a crack at it, so I am. Okay, I'm a long way off and I don't pretend to be anywhere near the standard of these guys, in fact I put my hands up and say I have a hell of a lot to learn, but I'm enjoying the journey and this is where I write about it.

The thing that I find really interesting about the whole trading thing, is the psychology behind it. Trading brings out the full range of character traits and flaws. Prices move on emotions such as greed and fear. We unwittingly employ unconscious responses to potential loss. This stuff fascinates me and is an area that I like to post about. I have a background in NLP and hypnosis, which I feel ties in pretty well with this stuff.

So, that's about it. I've got a long way to go and I'm up for the challenge and am enjoying the game.

Don't fall for the trap

As time rolls on and as more people get involved with Betfair and BetDAQ, etc, the markets become more sophisticated and also home to more sneaky people. The WOM (weight of money) method of trading (where you wait for a big chunk of money to enter the market and knowing it will move the market, you ride that train to cash-ville) has become less easy to use profitably, due to spoofers, these are people who know that people are using WOM and so try to fool them into commiting their money by putting a sizeable chunks of money into the market, but outside the current matching prices and then cancel out before they are matched, causing the market to move the opposite direction. This technique is not limited to the betting exchanges, you see it in financial markets too.

Another trick to watch out for is when markets have just reopened after suspension, you can find people putting in prices to catch out the unwary, e.g. if the prices are _ 1.5 1.6 then they may add in 17 (rather than 1.7) on the hope that someone will think they have value and select it, matching up a bet that is not what they think! I would have thought it's quite tricky to get caught out like this but I've seen these prices offered quite often, so some people must be falling for it.

Edges

I got a comment yesterday that got me thinking. I had talked about a football match I had traded on and how it had been a bit hectic and the commenter (sorry, you didn't leave a name) pointed out how I had no edge with my football trade. He was spot on and it was a reawakening. I had just been playing around, thinking I knew best, with nothing to base it on. I had been lucky and making a few profits there but if I carried on that way I was due a fall, so many thanks there.

So I have been thinking about the idea of an edge and how you need to have a plan or method or some rules to work to in order to avoid taking a big hit. On horse racing, I feel pretty happy, in that I have a few different methods I use, depending on the state of the market, i.e. the time till the off, the volatility, trending, etc. Sometimes I will just try and scalp ticks, using the price momentum as a guide, which can work quite well (although, as I mentioned in a previous post, I have been caught out a couple of times, usually when trying to take one trade too many. Hopefully, lesson learnt). On the football side of things, I need to do more research. I feel I'm going to have to also just try some ideas out, with small stakes, as paper trading really doesn't give you a good indication of when/if your back/lay will be matched, which is important.

Your edge then is what potential advantage you have over the other punters out there. That could be a knowledge of how the market moves in relation to certain events (e.g. WOM) or it could be based on an analysis of the fundamentals (form, determining price value) or the psychology of the "crowd" (e.g. over/under response to news of events) and also the discipline/rules you trade with (stop losses, when to get in, when to get out). Having no edge=drifting on the tides of chance.

Any comments, as always, are welcome (even if they are pointing out what I have done wrong!).

Testing My Strategy

Whilst trading on the horses the other day, I managed to get caught out a couple of times by a change in price move. I was trading using the ladder interface in Bet Trader pro, but my laptop had been playing up and I couldn't see the graphs very well (and I don't find them very clear anyway), so I think I missed seeing the momentum change (or perhaps there was no signal of a change, although I was trading using the momentum of the prices matching). As I am revising my eBook about trading software and bots, I have decided to add in some graphing examples and started building them. My primary goal is to be able to see the equivalent of bollinger bands (price envelopes - kind of like in Bet Angel Pro) and also some kind of momentum indicators. I've been talking about graphing applications for a while but now is the first time I've got to really get on with it. I'll include any code in the eBook and will make the executable available, if anyone wants to play with it (it won't be a battle hardened application like Bet Trader Pro or Bet Angel Pro mind!) but might be useful to run alongside. I just want to know if I am missing any signals or whether my strategy is flawed. I'm hoping that there are signals that I'm not seeing yet otherwise it's back to the drawing board.

USA v Brazil scares

I was attempting to trade on the USA V Brazil match yesterday. I was on the edge of my seat. I wasn't watching the match, but I had my eyes glued to the computer screen. I didn't play this event in the best possible way. I was rather undisciplined and a bit random, but I was so sure it would be a Brazil walk over that I didn't consider the full risks. Anyway, I'm sure some of you will tick me off, but I'll say what I did and leave it at that.

Firstly I compared the pre-match odds in Betfair to a couple of bookies and saw that the price for backing Brazil was higher in Betfair and was rising till near the kick off. I took a back there. I expected the odds to drop within the first few minutes and I then intended to lay it off. I also thought the game would be a sure win, so I entered a lay on the draw too.

Well, all started okay, the odds for Brazil started dropping but I let it carry on dropping, planning on getting out when Brazil score. It didn't work that way, the USA went 1 - 0 up. The Brazil odds shot up and the draw odds dropped down. Oops! I managed to hedge myself with a back on the USA and then Brazil scored and then scored again, which changed the odds and I was able to lock in a trade on the draw part. Because I had took a loss earlier with the USA goal, I had cut my profit potential right down and I was okay, as long as it wasn't a draw. Then just near the end, the USA equalised. This was my worst case scenario and would result with me coming out with a loss. The instant before I got out of the loss, Brazil got another one in and everything was okay. So, I got less than a fivers profit but the way things jumped around really showed me how much I have got to learn with football.

I managed to have a go on the horses prior to the football, but I got caught out with a big turn around which wiped out the profit I had built with several trades. Really annoying.

Arbitrage

Do many of you back and lay between exchanges (e.g. between Betfair and BetDAQ) or between an exchange and a bookie, to get better gaps between back and lay prices?

I was watching the prices of some football matches and horse races on Betfair and comparing the odds to a couple of bookie sites and also BetDAQ. There were a number of differences between them, which means ways to make a profit. I might be being hopelessly naive, but I think there are still opportunities here. As time goes on, they will get less and less as people set up bots to automatically look for these and perform the trades.

Just wondered if many people are looking in this area.

What to do about black swans?

In the book, "The Black Swan", by Nassim Nicholas Taleb, the Black swan is the name given to an event that is expected to not happen or to be judged as less likely to happen than it really is. The reason it is called a black swan is after the idea that people only believed white swans existed as no one had seen a black swan yet, but it only takes one black swan to break that belief. So, in the stock market, no one thought the chances of a crash were worth considering as it was treated as a black swan. When a black swan event happens in a market, prices move quickly, e.g. a stock market crash or some totally unexpected event knocking a favourite out of a competition.

In the football under 2.5 goals markets, I have started thinking about goals as a kind of black swan event. The price drifts downwards over time, but in the event of a goal it jumps right up and then continues drifting down again. Taleb says that there are two approaches to black swans: 1) Treat black swans as if they will never happen and risk losing your stake (e.g. backing, then waiting and laying again, in under 2.5. goals without watching the game in-play) 2) Assume a black swan is likely to happen (determining that you believe a game will have a goal and then laying the under 2.5 goals market and sitting and waiting for it to happen and the price to jump up so you can back). Okay, so its not a perfect use of the analogy but the idea of the black swan can be a handy one to have in the back of your mind when you are considering risk. Is the event that could lose your stake or make your bank empty, as unlikely/impossible as you really think and can you mitigate against it, or, is the event that everyone else thinks will never happen actually more likely than they think and so there is a value opportunity.


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Night Horses

Hooray! Some late horse racing tonight, so I actually got to trade on horses. There were two races that I saw on the coupon running after 8pm. I was mainly scalping on them both. The first one, I started about 15 minutes to the off, as money was flowing in. I basically waited till there were two opposing chunks of money on the back and lay sides and estimated the rate at which they were being matched and still being topped up, then I added my money to the side that looked to be matched first but not by a long time. I made several trades before the price direction changed and I had to scratch trade. I partially greened up at the end. I guess greed was still getting the better of me, but at least I hedged. I did this on both races. A good job really, as I won one and lost one, but came out in profit.

Money down the toilet (but only £2)

I got back from work late today, as I had a lot on, which meant that I missed all the horse racing and the majority of the football. On football, I like to be there from the beginning, but no chance here, I only had the closing minutes, so I didn't bother. I wish I had had a go now, as I got a bit annoyed that there was nothing for me to trade on and had a root through the Grey hounds (nothing) and the US Horse Racing market, where I put a back on for a couple of quid. I used low stakes, just in case the market closed on me before the clock had ticked down, like it did before. Yep, before my lay was matched (illiquid market) and still with 3 minutes left on the clock, the market suspended. Another couple of quid down the toilet. A bit silly, but I just wanted to put a trade on, I didn't really care if I didn't close it. Perhaps I'm working too hard!

eBook Complaint

I recently received a complaint that my eBook, "How to build your own Betfair bot or trading software" didn't contain enough information. When I wrote the eBook, I put in it information that I found really useful, getting started. I don't want anyone to be less than over the moon, so I am withdrawing the eBook and enhancing and updating it. Anyone who has already bought it will automatically receive the updated version.

An ass at Football

I thought that I had football sussed out and was going to make some consistent profits. What an arrogant tosser. Nope. I still have a lot to learn. I was trading on the Motherwell v Hearts match in the under 2.5 goals market and after looking at past stats and a bit of research, I thought there would be a couple of goals. I know too little about football to get confident here, but I was. I was too over confident to think and decide on a price to get out of the trade at. So after a few scalp trades which gave me a few ticks profit, I put on a lay, expecting a goal and the price to jump up. The price began slowly dropping and I watched as it approached my lay price. I thought, should I just get out here and re-lay at the lower price? But, no, I didn't, I just thought "any minute now, a goal will be scored and the price will jump up". It didn't. It kept dropping. I don't know why I was so convinced another goal would come in. I think I'll stop trying to predict results, or at least make sure I have an exit plan first.

Greedy boy gets nothing

Well, I got a few horse racing trades in but the trades that have hacked me off, mainly due to not learning the lesson of not being too greedy is one of the football matches I traded on. I traded on Almeria v Valencia. I checked out the stats and saw that they had no score when they last met and expected the under 2.5 goals to drop in price, so I backed it early, then layed it after 10 or so minutes. I then attempted to scalp some ticks, laying first, in case a goal was scored. Whilst doing that, a goal was scored. The market suspended and when it re-opened the prices had shot up and I was able to close the trade out for a nice profit. This is where I then got greedy. I thought the game would continue and end up at 1 - 0 or 1 - 1 maximum, so I left my "free bet" as it were, and moved on. The game ended 2 - 1, so I got nothing. I could have greened up and come out nicely. Nope. I was greedy. Hopefully, I have finally learnt that one. It's a funny old game.