Thursday, November 29, 2007
The tip really can be defined as simply as this... Cut your losses and let your wins run.
The concept behind it is simple. When trading we're pretty much trying to maximise our profits while protecting our bankroll and losing as little of it as possible in the process. Of course, the concept, and the reality of having the discipline to actually do it, are two totally different things. Especially on the taking a loss side of the equation. When in a losing position the temptation is always there to just "hang on" until things turn round, no matter how experienced a trader may be.
There's no need to take my word for all of this though. Let me use an example. One regarding legendary Wall Street trader Jesse Livermore that can be found in the excellent Reminiscences of a Stock Operator. In the book by Edwin Lefevre, Livermore goes under the name Larry Livingstone and, early in his career, has this to say after turning a multi million dollar fortune into comparitively nothing while trading commodities:
"It seems incredible that knowing the game as well as I did and with an experience of 12 or 14 years of speculating in stocks and commoditites I did precisely the wrong thing.
"The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. It was an utterly foolish play....
"Of all speculative blunders there are few greater than trying to average a losing game.... Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse."
I can't really improve on that. It sums it all up about as well as it can be summed up! It's dynamite advice and easily transferable to sports trading on betting exchanges such as Betfair.
So that's the concept sorted. What about the practicalities? How do we go about implementing this trading strategy? Well let's take a basic look at each part of the tip - cutting losses and letting wins run.
This really is as straightforward as planning. When we open a position we should know where we are going to close it if the market moves against us. The point at which to set that bail out price is a whole different subject but how we arrive at it doesn't matter for now. The important thing is there should be a bail out point.
This means we should never lose more than a set amount on a trade. Which helps protect our bankroll and leaves us plenty of money to get involved again. Essentially it stops us just staring blankly at a screen as the market price simply runs away from us leaving us facing growing losses. It keeps us in the game. And in control. While at the same time preventing that awful feeling we've all no doubt had where the price is running against us and we're just hoping "something happens" to turn it around so we can get out for a smaller loss or even break even. As the Jesse Livermore example shows though, and as some of my recent results show, knowing all this and putting it in practice are two totally different things. Having the discipline to actually implement the stop loss can be the hardest thing to do.
Letting wins run
This is the nice part! But also has its difficulties. As the temptation to take a profit, any profit, can be large. Long term though we will make far more if we let our profits run. Imagine how much just 5 extra ticks in each completed trade (open and closed) would make to your own trading over 50 trades. Or 500. Or 5,000.
While letting our wins run we are, of course, also trying to protect the profit we've already made. Give as little of it back as possible as it were. One way of doing this is to implement a trailing stop loss. For example, say we've backed something at 1.8 and the price is now 1.6. We might say to ourselves if the price hits 1.7 we'll cut the position drifting against us and take the ten point profit we still have at 1.7. If the price continues to drop however, say to 1.5 we might move our trailing stop to 1.6. And so on.
There's really so much more that can be said and discussed on this subject of cutting losses and letting profits run but in a nutshell that's it. Naturally we should weigh up all the circumstances involving each market we enter when considering exactly how to implement everything. I certainly alter my strategies depending on market conditions. For example, in the recent Twenty20 World cup I was still happy to let wins run but was far more willing to take a quick profit when it was available than I am in, say and ODI or test match. This was simply because of the increased volatility. Of course I was still cutting losses as usual. I guess the point is this. The trading strategy is a winner. But as with all strategies we need to consider how best to implement them in the markets we are getting involved with.
Tuesday, November 27, 2007
To be honest it's not the best trading tip to offer up. Bit of a cheat in fact. But as it happened twice the other day and I have screenshots of both examples I thought I'd blog about it while it is still fresh and relevant.
Sharp-eyed readers may have noticed that in the last week or so I have added a categories section to the right hand side bar. To keep up to date with all the tips I'll be publishing just click on the Trading Tips section there. At some point I'll also run through all my old blog entries and add any old entries that are relevant.
Help Yourself to Free Money
Ok. I've already said it's not the best tip. In fact it's snidey. Not as much as a trap bet. But all's fair in love and war. And besides, if someone is really so desperate to give their money away who says I can't take my share of it? I have in the past and I will continue to do so.
The tip is simple. And it is this........ Leave lays below the true market price.
Eh? I hear you asking after you've read that far for that piece of toss? Well bare with me. And take a look at this graph.... (click it for a larger image)
Anything stand out about this graph from the 1st test between India and Pakistan? Like the massive plunge in the draw price from the mid 2.1x range to 1.36?! What caused this? Well, it's simple. Someone or something (a rebellious bot?!) made a mistake. A bet was submitted to back the draw at a price at least as low as 1.36. For all we know it might have even been 1.01 but finally got fully filled at 1.36.
Now see the advantage of leaving a lay below the true market price? Yes. I've said it's snidey. But if people make mistakes I'm no saint. I'm going to take advantage. It's not as if people don't benefit from my stupid mistakes.
Call me fickle but I distinguish between this and a deliberate trap bet. In a trap bet the price might be 1.5 to lay and someone might ask 16 on the back side in a deliberate attempt to trick someone into laying them at stupid odds. Here there is no attempt to deceive. We're simply leaving a lay up and waiting for someone to make a mistake. And if they do we profit from it. They feel stupid. And learn from the mistake.
OK, I hear you say. But look at the sums involved. Peanuts were matched at the wrong prices. Well it is peanuts to some. But a profit is a profit. And much larger sums are matched during these mistakes too as this graph shows.... (click the graph for a larger image.)
Ok, this screenshot was taken immediately after the mistake so the price movements appear more spread out than if viewed in a longer time frame. That doesn't really matter though. The point is the New York Jets were playing the Dallas Cowboys. The Cowboys started at 1.1x and their price never got bigger. Yet someone has backed the Jets all the way down to 1.21. And this time it wasn't for peanuts. It took several thousand pounds to get the price that low. Nearly £4k was bet at evens alone. If you had layed that you could have immediately backed it back at 25+, or layed the Cowboys at 1.0x for a huge guaranteed profit. Leaving lays below the true market price suddenly seems a little more worthwhile now doesn't it?!
Alright I hear you ask. But how often do mistakes like this happen? Well, who knows. I guess you could use Betfair historical data to get a pretty good idea. But i'm happy to just know it works. As for these two examples? Well, they both happened last Thursday. I only looked in on a few markets. I wasn't looking for examples. They just cropped up while I was going about my normal trading business. Sure, to see two examples in a day in the 3 or 4 markets I looked in on might be a little unusual. But consider this - there are thousands of markets each day on Betfair.
The irony is most people don't even realise these mistakes are being made. Why not? Because they use the traditional Betfair interface. Their odds refresh every 30 seconds unless they refresh them manually. The action is all done and dusted before they realise it even happened. Fast refreshing trading software makes it all too clear what is going on though. To such an extent that even if you haven't left a lay in at below the true market value you can very often pick off these mistake bets before the person who made it realises what they've done and cancels it.
So there you have it. You can do worse than leave a lay at below the true market odds. It ain't pretty or cultured. It's taking full advantage of the mistakes of others. And it works. Just be careful. Afterall, you don't want to get caught yourself if you are too slow to cancel and something happens in the event you are trading to make your price value! Of course, there's nothing to stop you just leaving the lay up even below that level in the hope...
Monday, November 26, 2007
Well as losses go this one is right up there with some of the more annoying ones. Not angry with it at all - as I've said before losing is part of the game. You can't win all the time. But some losses are easier to take than others and this was certainly an irratating one. As ever I have only myself to blame though. And, as ever, i've taken the loss on the chin and put it behind me.
The £915 is made up of a few events that have either closed or I got involved with last night. All cricket or NFL markets. Some pretty good profits on some but the killer was last night's Philadelphia at New England NFL match.
Crazy really. I'd had some time off from trading as I mentioned yesterday and started doing the New Orleans at Carolina match early in the evening. Decided I wasn't really into it however so just levelled out all green during the first quarter and left it. Had something to eat, watched some tv and fell asleep on the couch. Woke up a bit later and felt like having another look. Emma's away so I got involved in the Patriots' game.
Well, won't bore you with all the details but ended up with a maximum market loss on the match odds market and a few hundred red on a handicap one. The handicap one really riled as I was offering pretty decent odds to try and get out for a profit but there just wasn't the liquidity at the time.
The match odds started off fine. Was just taking a few ticks here and there. Closed a few trades for losses too. Was genuinely surprised with the Eagles but never really doubted the Patriots would win - which they did. This was the route of the problem though. Although I closed out some positions for a loss I didn't close them all out. I remained steadfast in my belief the Patriots would win for too long. And although they did this was a mistake. It needed an incredible drift for me to hit my max loss point but as the game progressed and the scores remained pretty level a tough on pitch ruling against the Patriots got me there and i bailed. Real bite my lip stuff as I still believed they'd win. Max loss points are there for a reason though so I acted.
Of course, the Eagles immediately went 3 and out, the Patriots got the ball and scored. From memory I bailed just two ticks from the highest Patriots price. Galling stuff. But also avoidable if I'd approached the game differently and not held some of the earlier positions for as long.
So there you go. The irony is if I'd held the position 2 minutes longer I have had a nice win on the match odds market. Of course, the loss could have been that much more too mind. With hindsight I'm pleased I took the loss when I did. But not so happy with letting it run to a max loss situation. I just didn't believe the price would ever drift that far and took the decision that I was going to hold until it did. Genuinely just didn't think it would get there. And it's just an extra kick in the teeth that it just scraped it before plunging again when the Patriots got on their next drive.
Pretty hefty red booked then. Made a sizeable dent in my recent NFL results too. Not so much to trade over the next few days so will be adding some entries focussng on more general trading tips and pieces. Bit rich coming from a guy whose just blown the best part of a grand but feel free to have a read if you want!
Sunday, November 25, 2007
The result is I greened out early in the first test between India and Pakistan and have barely touched it since. Shame really. Leaving my early positions would have been a lot more profitable but I wanted to be on the safe side and there's more to life than trading anyway.
Also missed today's ODI between South Africa and New Zealand. Looks like it was a thriller with victory coming on the last ball of the match! Usually a fair amount of proverbials done in close finishes like that so hope you had a good one if you got involved.
With Emma now safely tucked up in Shanghai I'll be putting a little more time into my trading over the next couple of weeks. Not sure about it yet but might give the pub a swerve and do some of tonight's NFL action instead. See how I feel in a bit. Back tomorrow with a proper blog entry either way.
Friday, November 23, 2007
Busy trading day yesterday then. Had it in the diary for a while so have had a hectic week trying to clear the decks normal work wise to free up a day or two for trading. Pleased it turned out to be worth it. Especially as it sent me through the £50,000 profit mark since I started the blog - and therefore just over half way to achieving my new £101k challenge :-)
Started the day with the first test between India and Pakistan. Couldn't see a reason not to oppose the draw at 2.2x in the build up to the test so this formed my opening position. Got up a little late for the start of the match and missed the price blowing to 2.88 overnight before returning to 2.14 by the time I had tuned in during the second over or so. Early wickets saw the price drift though and I backed India shortly before lunch.
Which was all looking great by the time Pakistan were 8 wickets down before tea. Misbah and Sami then frustrated India till the end of the day and I ended up reducing my reds on Pakistan and the draw as the score gradually ticked over 200. So a good day overall if a little disappointing towards the end. What was looking set for a possible big win by my standards - even early in the test - is now looking more moderate. Still a long way to go though and a pleasing day one form a trading perspective.
Over in America it was Thanksgiving Day and that meant 3 live NFL matches. Couldn't do them all but had a look in on two. Things started badly in the first between Green Bay and Detroit when I submitted a bet in error on the Packers. I wanted to get on them, just not when I did and that existing position stopped me taking the odds against prices when the Lions got the opening scores. Didn't take too long for Favre to turn on the style though - throwing a franchise record 20 straight completions - and I ended up with a profit of around £260.
The rest of the day's profit came from the Dallas Cowboys v New York Jets game. Got involved in the match odds and a handicap market. Was really only going to be the Cowboys all the way and indeed once the game had started their price never got bigger than the SP. (P.S. Romo did not throw a franchise equalling 20 straight completions. What kind of numpty would get something like that wrong?!)
Took a couple of screen shots from today's action but think I'll post them over the weekend as part of a trading tip to get a new trading tips section I'll be starting underway.
Tuesday, November 20, 2007
All a bit disappointing really. The final day of the second test between Australia and Sri Lanka was set up for a great trading event. Unfortunately a few early wickets put paid to that and instead it became a question of just waiting for Australia to win.
We still got some pretty rapid price movements in the first couple of overs mind. The draw out from 5 to 9.6. Lanka in from 9.8 to 5. Having backed Sri Lanka at up to 48 the day before I was able to use the lower prices to help sort my book out but without a decent attempt at the win from Lanka I was never going to really make much on the match.
That's because my starting position had been a lay of the draw which I'd bailed from during day 3 from memory. That had left me all red which then became large Lanka green red elsewhere. Not one of my best trading results then but managed to turn it round nicely in the end. Would have made more but hadn't increased my Aussie wallet limit which stopped me getting matched when I wanted to. Decided to leave it after that.
I guess the lesson I take from this is to try and not do too much at once. With another test match in a different time zone, ODIs and a very busy normal work schedule I just couldn't give this test the time it deserved and this is reflected in my result on it. Basically I just left positions and hoped knowing that I'd left them in such a way that I'd more than likely be able to comfortably sort them out if they went wrong. Seems I didn't hope enough and I was left to sort out the losing positions. Pleased to make a profit in the end but probably better things to do with my time during a busy work period than stay up till the early hours to prevent a loss.
So, happy with a profit on the game but will no doubt avoid the next all nighter when other trading events are on. Be better off staying fresh and focussed on just the one or two games. Three games in 3 time zones has been a bit much!
Monday, November 19, 2007
Apologies again but today's post will be another quick one as I'm just very busy with normal work at present. Should be back to normal from Wednesday though.
Got through a lot of trading on Sunday and made just shy of £300 on the settled results. Bit disappointed really but had a nightmare on the Dallas NFL game (lost around £750) which wiped out much of the rest of the day's profit.
Not going to go into the full details of it but it was a shocker from any angle you look at it. Let's just say in the first quarter i fell victim to two bad snaps, a missed field goal, an interception and compunded my bad luck with sheer stupidity by accidentally leaving a bet in the system that got snapped up by some who must have though Christmas had come early. Believe it or not things went downhill after that little lot!
Still, on the plus side I picked up some decent wins in the completed South Africa v New Zealand second test and another NFL game which saw me into profit for the day. Also did the final ODI between India and Pakistan. Another poor one for me. Made around £35 but it was hard work. Just not liked that series at all and pleased they're moving on to test matches now.
Right that's it. Gotta dash. Lot to get on with but should be able to put more time into the entries - and hopefully answer all the questions and emails I haven't yet - in the next few days. Good luck with your punting in the meantime.
Thursday, November 15, 2007
Just a quick update tonight as I'm knackered and have to be up early to travel tomorrow. Shame as I'll miss day one of the second test between South Africa and New Zealand but sure I'll be able to catch up with it as the game progresses.
Had a look in on the 4th ODI between India and Pakistan today. India won to wrap the series up and I managed to make the £580 or so on the back of them. Wasn't a good game for me to trade though - in fact I've not particularly enjoyed any of the current series between the two that I've done. Been quite tricky games to trade in places.
Still, not every game can go the way you want it too and I'm more than happy with the day's profit. Pakistan batted first and posted 255. Couldn't make my mind up how good that was. Thought it could be enough to win, probably wouldn't be but didn't merit India, even with a strengthened batting line up, at 1.6x ish. Decided to see what the ball was doing in the run chase before getting involved further and was then treated to an awesome display of shots from Sachin Tendulkar.
He was finally out for 97 - the sixth time he's been out in the 90s this year - but by then the Indian's were in a winning position, their price had shrunk and I'd been involved again more than a few times. Was very cautious about my involvement though. Just didn't feel comfortable enough to get involved too heavily so didn't. India eventually wrapped up a fairly comfortable 6 wicket victory with 21 balls left clinching the series in the process.
Will probably look in on the 5th ODI on Sunday. In the meantime will be keeping an eye on the two tests about to start. Was tempted to back Australia in the 2nd Australia v Sri Lanka match but have made a small lay of the draw again instead.
Not got a position in the second South Africa v New Zealand test yet. Started getting a headache staring over rain radars earlier. Pretty sure it's a South African win, and was tempted to back them rather than lay the draw, but have decided to leave it for now until I can look it again with a fresh head. Convinced their will be weather interruptions. Just can't decide if it will make much difference to the result. Best of luck if you have a position already. :-)
Tuesday, November 13, 2007
Decided to stay up late last night / this morning and do some NFL rather than the tennis from Shanghai today so have booked today's result already and won't be getting involved in anything else.
Pleased I did too as I have no complaints with the £450 or so profit. Very happy in fact! That said the match was pretty dire with the 49ers performance possibly leaving them with the label of worst team in the NFL.
They were awful. So bad in fact they managed one 1st down in the entire 1st half. And that would have been challenged if it didn't come right at the end of the first half so there was no point. Still, that one long play mushroomed the 49ers' yardage for the half to 76!
The second half didn't get much better for them although they did manage 5 further 1st downs to record the second lowest total in the NFL this season. Two field goal opportunities were turned down in favour of a 4th and inches and 4th and 3 - both of which failed.
Which made trading the game all rather straightforward. Didn't do much apart from get on the Seattle Seahawks at various points and, for the most part, just leave the positions open. Did close a few here and there to lock in some profit, especially at the start, but as the game progressed it was pretty clear there was only one winner and the Seahawks eventually wrapped it up 24-0.
Been reading a new blog for the last few days which is quite interesting. It's called Betting Blogs and is a useful daily round up of the best stories from all the betting blogs out there. Saves having to visit them all individually. Good stuff - especially as it's mentioned my humble blog a few times!
Monday, November 12, 2007
That's better! A nice green to round off a weekend's trading and put the loss of my last blog entry behind me. The money mainly came from the test matches I'd been doing on and off since Thursday but there was also some profit from the weekend's NFL.
The bulk of the profit came from the first test between South Africa and New Zealand. Given I was already involved in two markets when the game started my initial position, which was a lay of the draw, was relatively small. Shame as this was the match the market behaved in the way I wanted it to the most. As the game progressed though more funds became available and I eventually ended up with around a £2325 green on South Africa. Albeit with hefty reds on the draw and New Zealand. Weather permitting I'm looking forward to more of the same in the second test.
The Australia v Sri Lanka test was less successful and I made just under £70. Hardly got involved really. Again layed the draw early and held that until the start of the 4th day. Didn't want to stay up for the match and, knowing there could be some big price movements on the day, I decided to watch the first 30 minutes or so. My plan was to level out for a small green if the price hit 5 - and watch a little longer if there was an early wicket. Well, the price hit 5, I levelled out - and the very next ball there was a wicket. My green on Australia had gone from around £500 to around £90. Not my best timing ever but not much I could do either so just shut down and left it for the day.
The rest of the profit - around £360 - came from looking in on some NFL games. As there's no cricket on for a few days now I might stay up and do tonight's too though it is a late start and I tend to need my beauty sleep these days.
Friday, November 09, 2007
It's not quite what Andy Warhol had in mind but I reckon it's true - every trader has their 15 minutes of pain. Unfortunately yesterday was my turn and I managed to turn a several hundred pound green book in to a several hundred pound red one. Several hours good trading wiped out in 15 minutes.
I'm realistic enough to know I can't win every time I trade. And I don't normally let losses bother me. Just take them on the chin and move on. Yesterday's really bugged me though so I allowed myself a brief moment of melancholy before heading out to cheer myself up and catch a Stone Roses tribute band - which turned out to be cancelled! :-(
I made the loss on the 2nd ODI between India and Pakistan. Put simply I got caught by an odds swing of seismic proportions that still somewhat baffles me. With around 10 overs to go of the Pakistan run chase I was sat there with a green India, red Pakistan and a smile on my face. Pakistan needed over 9 runs an over, I effectively had an all green book, India were around 1.5 and I knew the price I was going to bail at for an all green book if it looked like Pakistan might do it.
3 balls and 10 runs later and the price was evens. Another 3 balls later and the India price hit 2.66. So in one over the Indian price went from 1.5 to 2.66. And what had happened? The Pakistan required run rate had dropped from just over 9 an over to just over 8.5 an over. I don't know. Maybe I just read it totally wrong but for me that was a massive over reaction on the back of half decent over.
Anyway, whatever the reasons the fact is the market just ran away. Paniced. Stampeded even. Even with my trusty one click trading software I could barely get matched. By the time the 5 seconds were up and the bet had been submitted the market seemed to have drifted another 5 ticks. I finally got everything I wanted matched but by the time calm prevailed and the market settled I was staring at an all red book. I was stunned. It felt like I was in the scene at the end of Trading Places where the Duke Brothers are left standing among the old orders strewn across the trading floor after being ruined by Eddie Murphy and Dan Ackroyd!
Of course the market had over reacted and as it settled it back a little. Pakistan continued to stay up with the rate though so I backed them - still well odds on - in the belief they would win. A wicket immediately fell and India were back to 1.5. At that point I thought sod it, equalled out red and simly left the match. It was only going to get more volatile and as the volatility increased getting involved would become more and more of an outright gamble. It was time to accept the red and quit.
So there you go. 15 minutes or so of pain in which I swapped a healthy green for a sickly red. I was literally caught out by the scale and speed of the price swing. Not really seen anything quite so big at that stage of a match before but you can't argue with the market. Guess I just read the whole thing incorrectly and paid for another lesson. The thing that really got me after was it wasn't as if I was unwilling to level my book out. I intended to and knew when I would. When I reached that point I just couldn't get matched.
Anyway, all behind me now and on a more positive note I have all green books on the two tests going on at the moment - Australia v Sri Lanka and South Africa v New Zealand. Small in the first and moderate in the second although with those two - and the ODI - running at the same time even my new bankroll wasn't sufficient to enable me to take the size of positions I wanted on the South Africa test. Bit of a shame as my initial lay of the draw in that was a more profitable position to have taken than my original one in the Austalian match. I mentioned this might happen and I may have to increase that operating bankroll. Might be that I'll end up doing it sooner than I thought.
Monday, November 05, 2007
Well that's been a fairly busy 24 hours trading. Been involved in trading NFL, cricket and snooker since yesterday evening and am more than pleased to come out of it all with a sizeable profit. A good start to my new £101,000 challenge anyway. :-)
Won't go into individual event details on the NFL. Was involved in 4 games for as little as a play or two to more or less the whole match. Bit of a disaster on the big game of the night. Dropped just over £400 on the New England win over Indianapolis. More than made that up on the Dallas at Philadelphia game and picked up around another £100, mainly on the San Diego at Minnesota match.
The Vikings match turned out to be pretty awesome after a dull start. Rookie Adrian Peterson rushed for an NFL record 296 yards in the match, taking his season total to a league leading 1006 yards. While in the same match we were also treated to another NFL record when Antonio Cromartie made a 109 yards failed field goal return for a touch down and in doing so recorded the longest ever play in NFL history. Amazing stuff.
Had a look in on the 1st ODI between India and Pakistan too picking up around £450. Pakistan batted first and never really looked like they'd scored enough. Their 239 was certainly defendable but India never really looked in doubt once the chase was on and it became a question of simply waiting for them to knock off the winning runs so I could have a well earned break from trading.
This afternoon I had a very quick look in on the snooker and the Matthew Stevens v Martin Gould match from the Northern Ireland Trophy. Built up some green on Stevens over a couple of frames and then just levelled out and got on with some proper work. Turns out Gould made a great comeback from 3-0 down to win 4-5. Pretty sure Stevens traded at 1.02 while I was watching so wouldn't be suprised if some small fortunes were won and lost on that.
Anyway, bit tired so going to relax for the evening. May do the NFL later but it is on very late. The cricket trading schedule gets busy again from Thursday so need to finish off looking into those games at some point too.
Saturday, November 03, 2007
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The software is, for example, my trading software of choice. It's what I use over 90% of the time when I'm trading. But I tend to use the ladder. And to use the ladder there is a charge. A small charge yes. But a charge is a charge.
Still, if you're happy using a Betfair style interface to trade, but want a heap of extra trading tools to give you an edge, this is a great offer. Afterall, let's face it, you don't have to ever use or pay for the ladder interface. So this really is a case of getting something for nothing. Enjoy the free trading software and good luck!
Friday, November 02, 2007
Discipline underpins the whole bankroll issue. Retain that and you'll always be in the game. If nothing else that will always give you the opportunity to be a successful trader. A well thought out bankroll strategy gives you the chance to be a winner. Keeps you liquid. It's a crucial first step in being a consistent long-term winning trader.
So what are my new bankroll rules? At their most basic they are this. I will operate with a £12,000 Betfair balance. The most I am willing to lose on an individual event is £1,250.
Before I go into that in a little more detail regular readers will probably notice the similarities to my original bankroll strategy as well as the one I trialled for the Cricket World Cup before adopting it full time at the end of the tournament. The basic principles are the same. The only real difference is the size of the sums involved.
As i've discussed with some readers I'd actually upped my operating balance again since adopting the post Cricket World Cup rules and peaked with around £17k in my Betfair account. By that time I was operating to a max loss of £1.5k from trading as well as any losses from outright bets that I considered value in running. It was at that point that disaster struck. I'd got ahead of myself a little and following that loss I decided not only to stop the outright value bets but also that I needed both a new challenge (for focus) and to spell out my new bankroll rules. (for discipline)
So. A £12k operating balance with a £1.25k max loss per event. Small fry to some. But big numbers from where I started with just £1k in total. That £12k and £1.25k tell their own story too. They reflect the way I trade. Let's say I used all that £12k and made £1.4k on an event. I'd consider that a result. But another trader might use just £2k and make a £2k profit. Assuming a run of the mill trading event what differentiates us here is attitude to risk. I'd be willing to place a small wager that my long term results would be more consistent than the other traders. That my overall losses are smaller. That I don't experience as many highs and lows. (Well, either that or they're a far superior trader!)
Of course, the real point here isn't about who makes what profit. But how. I might have £12k sat in my Betfair account. But there's no way I'm going to use it all until I'm pretty sure I know the result.
Team A and Team B are evens the pair at the start of a cricket match. The reality is £12k balance or no £12k balance my biggest liability in this situation is rarely going to reach £1k. Which given I can cut a loss if things move against me means perhaps a £150 - £200 all red book if I hit a stop loss point.
Now, it's later in the match. Team A are on top and their price is 1.1. For the sake of a straightforward illustration let's say my book stands at £750 green Team A and a level £0 Team B. In this situation I am far more willing to have a larger liability on Team B than at the start of the match. If I consider the price warrants it I will now happily bet £5k on Team A. This gives me a book of £1.25k green Team A and £5k red Team B. Of course, if the price moves against me I can bail from the £5k back. Each tick it moves against me costs me £50. But if I chose my spot to make the bet well I will have plenty of time to bail here and still make a decent profit. I just have to pick the point I will get out at and stick to it.
What I'm effectively doing then is building up a green during a match with a limited liability approach before trying to maximise my position at the end of the match. Bet £1k at 1.1 in this position and you add £100 to your winnings. Bet £5k and you add £500. Repeat this 10 times a month and you're £4k better off. The effect this approach has had on my own trading is clearly visible in this graph. Despite the fact that there were simply more events to trade you haven't got to be the sharpest tool in the box to realise I increased my operating balance from £1k to £4k in the March to April 2007 period.
Of course, I'm not saying I'm just going to lump on short odds. Anything but. Picking the right situations is crucial. And then the amount of that £12k I will be willing to use in a lump on situation will depend largely on my exisiting book. Back to the example of Team A at 1.1 near the end of that cricket match. I'm not going to lump £5k on a 1.1 shot if I have a book of £50 green Team A and level £0 Team B. If the price moves just two ticks against me I'm staring at an all red book.
The point is having that £12k there gives me the opportunity to maximise my green from situations where my book allows it. Crucially it also gives me the chance to be involved in two events at once. Say a slow moving test match and an ODI. It enables me to run sizeable exposures in both games. In the past I've found I'm missing out on opportunities to make money simply because my operating balance has been set up for a single event only. I've estimated £12k will allow me to comfortably trade two concurrent events within my max loss limit. I'll see how it goes but if I find I'm still missing out I may go ahead and increase my operating Betfair balance to £15k.
So there you have it. My new bankroll strategy. Of course, I've really only covered the basics but the black and white amounts are there as well as some of my more general management principles. The prospect of losing my new max loss of £1.25k isn't enthralling but looking back through the 18 months or so I've been keeping the blog I've had just 3/4 max losses. The reality is I tend to just cut losses and leave a match if things keep going wrong.
Concentrating on maximum losses, while necessary, is also a little pessimistic too though. So on a more positive note I'll be keeping my fingers crossed and hoping these new rules keep me in the green and on the road to that £101,000!
Thursday, November 01, 2007
The aim then is simple. Turn £1k into £101k. And pocket a cool £100,000 profit in the mean time. Well, one can but dream! The whole thing may not be as far-fetched as it sounds though. Why not? Because I'm going to cheat a little! The new challenge will include my results to date. Which means, as the picture below shows, my original £1k now stands at £46,734.51. (Click graph for larger image)
So why a new challenge? Simple. It helps keep me focussed and disciplined - as does writing this blog. The idea has worked once, with my successfully saving for my wedding, and hopefully it can work again.
And why this challenge? Given time it's realistic. I'm not going to achieve it in 3 months. But at the same time hopefully I won't still be at it in 3 years. Goals need to be challenging but achievable. I think this is both.
There we go then. A new challenge. With a new look blog and a new bankroll management policy to follow shortly. Check back soon!