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.