Daily result: £143.65
No, don't worry, I'm not going write a massive essay about the differences between punting and trading. It's a huge subject and besides I'm sure many could have a much better crack at it than me. But I do want to focus in on one small area as today I made a mistake. Infact I made two mistakes. The same one on both the events I got involved with. And it's all to do with why I opened my initial positions.
The two events I lost on were the South Africa v Pakistan test match (I was carrying a small red from the previous day) and the New Zealand v Australia ODI. (I caught the second half). The annoying thing is both the initial positions I opened today were eventual winners. That is, South Africa to win the test. And Australia to win the ODI. But i managed to lose on both of them. Now I've noticed I've done this in the past too, especially on short odds favourites as today's were. So I've been sat here scratching my head wondering why. And, right or not, have come up with a possible answer which I'll try and explain.
It's all to do with my expectations when I open the position. In normal trading mode I'll usually open a position in the direction in which the momentum is going - the trend is your friend and all that - though I'm not afraid to oppose it in certain circumstances as I've discussed recently. Anyway, the key is I open the position in expectation of a market movement.
But in the case of today's two losses I opened the position in expectation of the eventual result. That is I expected South Africa and Australia to win. But having done that, instead of riding out some expected market turbalence, I fell back into a trading mindset and closed positions out in fear of bigger losses as the markets moved moderately against me.
Translate that and I believe I opened the positions as a punter only interested in the result but then lost sight of the bigger picture and fell back into a trading mindset. And this is a leak I think I may have had for a while but perhaps am only just recognising.
What bought it home to me today was both events were on at the same time. Now regular readers will know I don't believe in the Free Money principle. But at the same time having considered the two situations I genuinely believed both my opening positions were winners. The trouble was with only one Sky box in my den I couldn't follow both events properly though so rather than trading a single event as I normally would I basically punted two events with the thought that my picks would win and I'd probably have a nice chance to lay off either at a later point if I wanted. Which, of course, I would have. But not before both prices moved against me in the shorter term. A true punter wouldn't have let this worry him. Short term price fluctutations aren't really important. It's the end result that counts. But I'd reverted to type, had a short term trader's view and ultimately lost money as a result by getting too fiddly.
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Hmmmm. Reading back through that I'm not convinced I've explained it as clearly as I'd hoped but fingers crossed you get the gist. Anyway, it's a subject that's interesting me, as I believe I may have discovered a leak, and I'd be interested in any views /opinions / comments anyone has.
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7 comments:
Thought you explained it perfectly. A similar problem to myself lately, I wrote a bit about this in my aussie open conclusions today. You have to make a decision before you take something on - which hat am i wearing for this? punter or trader and as you said - punting requires you to ride out the turbulance. I enjoyed the way you described it.
Anyway, I just wanted to let you know I've finally got round to doing my links section and you are there sitting proudly at the top :)
Hard luck today, but it looks as though you really learnt from it.
Matt
http://www.Punt.com
Cheers for your thoughts Matt. Good to hear I'm not alone in the error or talking total nonsense!
And thanks for the link too. Appreciate it. :-)
It's 9.02 am.
Let's say you backed NZ at halftime at 1.12. You couldn't visualise how England could achieve 319 to win this game. 1.12 looks like free money. You stake 1000 to pick up this 120 quid.
Now after 4.3 overs England are 27/0 and trading at 1.22. You're uncomfortable now because the prospect of losing 1000 is looming large in your mind. You red out to swallow a small loss, which seems like a sensible trade.
Now it's 4.4 overs and Loye has been caught behind. You kick yourself for trading out, for changing your mind.
The leak is not some confusion between trading and 'punting'. Both are forms of risk-taking. Both can show short-term profits on trades which in the long-term are unprofitable, just through luck.
What happens is that you are using two different systems of reasoning. When you bet the 1.12 you can't imagine any other result.
While the batsmen are steaming along you are faced with the potential loss and this is uncomfortable to you. Emotions cause you close the trade to cut a potential big loss, irrespective of the correct mathematical probability.
Read about 'Prospect Theory' and look into Kahenman and Tversky's work.
Hi Anonymous> Just like to say a big thankyou for taking the time to leave that comment. It's probably been the most useful comment that's been left on the blog since I started and has made for an interesting morning's reading on Prospect Theory, Cumulative Prospect Theory, Loss Aversion, Risk Aversion / Risk Seeking.
Lots more to read around the subject and go back over but it's been interesting to quickly use these ideas to analyse my behaviour in previous markets I've been involved with. It's funny as I've seen the basic Reflection Effect questions on the Betfair Forum before but simply didn't realise why the questions were being asked. Suddenly it all makes sense!
Anyway, you were obviously watching the ODI so I hope the cricket treated you well today. I've spent most the morning since your post reading around the subject as England die another slow death. Fascinating stuff and I owe you a pint if we ever bump into each other at a betfair / forum event. :-)
Thankyou again.
Actually I did my bollocks but I was happy with the bets I had. I'd have them again in the same situations. The losses I hate are the losses where I know I made shit bets - playing scared under pressure.
Glad you enjoyed some of the issues raised. I read about this first through books like Taleb and Bernstein which your other comment-or, Matt, links to in his sidebar.
I do believe that what makes you money on BF is not trading software, or even strategies per se, but making a stream of constant, considered sensible decisions. We could spent a lot more time understanding how our minds work and how we analyse evidence, evaluate choices and reach decisions. Knowing where our own mental blindspots are might not make us much more but it might save us a lot. The heuristics and biases literature is a fantastic place to start.
Ultimately though it's better to be lucky than good ;)
And if you really want to tear the BF forum apart...
http://en.wikipedia.org/wiki/List_of_cognitive_biases
I'm pretty sure you could find examples of each and every one.
Sorry to hear about the cricket loss. Somehow I've got a feeling you'll bounce back. And at least with hindsight you were happy with your bets. As you say the worst losses are always those where you know you screwed up and are wouldn't place them again in the same situation.
As for the biases link - yes, I'm sure you could find most on the forum! And no doubt some in myself. :)
Anyway, curiosity has got the better of me. I appreciate you've posted anonymously but I can't resist a guess at who you might be. So I decided to have a stab by referring to an old Betfair forum name you may have discarded. Probably way off the mark but was wondering if I'd be close with the initials hs?
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