Clearing the deck

I’ve had a few days away from trading due to work so this has given me some time in the evenings to think about my trading challenge; where it’s going well, and where it’s going bad. I guess the fact that the bank has passed the 2K mark also makes it a good time for review.

Even though I’m ahead of targets set at the start of the challenge and doing quite well, there are a few niggling issues that I want to nail on the head before I move forward further. Despite the profit levels, I’ve one or two things bugging me and I’ve decided to put them on paper and address them as I’m not entirely happy with my trading as a whole. I think I’ve become more erratic and have started to enjoy the good days too much. Maybe they got to me and I’ve come to expect them. When I don’t have one, I’m finding myself overly-disappointed. At one time, a profit of twenty quid for the day would have been fine but now I’m getting a little greedy - leading to chasing and in-running trading on occasion. This has to be brought under control as protecting my capital (keeping in the game) should be my first priority. If I keep to these principles, the bank should grow safely (albeit slowly) and over time I should be successful.

I’ve went back through my records, my blog, and my p&l with a fine tooth comb to see what I can find and I’ve noted down a number of changes that need to take place. Most relate to discipline and staking.

Being honest, my staking has become haphazard (especially as the bank grew) and I’m probably risking way more than I should on certain trades. When I started this, I would always trade in ‘tick sizes’ and I need to get back to doing this. I would always have a certain amount that I was prepared to lose on each trade and I’d stick to it. Lately, I’ve let this lapse.

For example, I notice last week that I opened a trade with €200 on a horse priced 1.51 to back. This is fine and the trade went well as I layed it again at 1.50. Nothing wrong there.

However, in the following race, there was a horse priced 2.14 and I opened a trade, again using €200 as the stake. This is a problem.

On the first trade, the prices move in increments of 1% (1.51, 1.52, 1.53 etc) whereas in the second trade, the prices are moving in increments of 2% (2.14, 2.16, 2.18).

This is because between 2.0 and 3.0 the move in twos, whereas prices below it move in ticks of one. There are a number of key prices on Betfair you need to be aware of when trading where the increments are different: 2.0, 3.0, 4.0, 6.0, 10.0, 20.0, 30.0, 50.0, 100.0

What does this mean? Well effectively, I wasn’t managing my risk. On the first trade, I would potentially be losing €2 every time the price moved away from me. This is fine as long as I expect that. On the second trade however, I would be potentially losing €4 for every tick the price moved away from me (as the price increments are in twos). It’s not acceptable to take double the risk (on a whim really).

This is something I’ve let slip lately so I’m going to address it. Firstly, I’m never going to risk more than 1% of my bank (to the nearest thousand) on any given trade. So at the moment, I wont let myself lose more than twenty quid. Generally, I set my stop loss for ten ticks away so if a horse was trading at 1.5, I should use €200 stakes for that trade. If the trade went wrong and drifted ten ticks away from me, I would lose €20 if the horse went on to win. If the horse went on to lose, the book would be settled at zero. Of course, I don’t always let it drift ten ticks away, I’d often get out earlier for a much smaller loss – but setting the stop at this point means I can be absolutely certain that €20 is the most I can lose on any given trade. Hopefully, that can be something I can accept psychologically as it’s pre defined and a set amount. Lately, I’ve been trading where the potential loss has varied, often going into the hundreds. Not good.

I’ve printed off a chart for the stakes I should use for each price (it gets smaller as the prices increase) and I’m vowing to stick to it. If, over time, I feel confident that I should increase stakes a little, I’ll do so – but will still keep in mind the price increments and how it affects potential loss.

Knowing exactly how much I may lose on any given bet (and knowing that it’s only 1% of the bank should help my discipline issues and there is no need to go in-running hopefully. I can accept a loss of €20 and move on.

The downside is that I may find my bank growth slow down a little as I’ve been using far too big stakes lately on certain trades. Some of these trades reaped nice rewards but the downside was that I was tempted to chase losses (as bad trades cost me dearly too).

The other thing I want to combat is over-trading – trading for the sake of some action, rather than waiting until the market conditions are right. This is a lot harder than it sounds! It can get very boring watching a market and sometimes you feel that you are missing out if you don’t open a position. However, I’m making a vow to overcome those urges and will sit it out if conditions don’t match my criteria. It’s best to trade rarely but very well, rather than trade moderately and often. I know that I have to turn over my money as much as I can to churn a profit but the focus will have to be on quality rather than quantity going forward.

Another thing I’m going to do is review my targets but I’ll wait until the end of the month for this. At the start, I hoped to earn 5% per month and set my targets as such. I was making more than this but left the targets alone. Rather than plug away rather aimlessly, it would make sense to re-set my target at the end of each month, aiming for 5% of the rolling figure – rather than the figures I produced at the start of the challenge which have already been met.

Regarding trading this weekend, I hope to get some done on Friday evening, Saturday daytime and Monday daytime. I may trade a little on Sunday but I want to make sure I spend some time with my family over the bank-holiday too so I’ll see how it goes.