Betfair Race Trading Part 3: Stops, Spreads, The Rules And The Reality
There are certain personality traits evident in all the best traders, whether on Stocks or Sports.
FACT: Not everyone is cut out to be a trader. Trading requires a certain personality type and attitude.
• You must be firm, logical assertive and decisive.
• You must be willing to accept and learn from your mistakes.
• You must be able to follow a system and accept the rules without question.
• You must be aggressive and quick in following your predictions.
• You must be humble enough to realize that you must NEVER fight the market.
• You must be able to accept LOSS without judgment or self loathing.
These are personality traits which can to some degree be learned, in that trading can be taught by a set of rules, but the core personality is either there or it is not.
The other thing which is always missing from trading manuals is:
The reality of trading “profits”
Your days profit will be defined by the profits from trading decisions you make that move in the correct direction minus the losses you make from trading decisions you make that turn against you minus the sales commission taken by the broker or the commission on profit taken by the exchange.
What is essential in trading is the insight to see quickly when a trade is going against you and work to a system that activates a “Stop Loss” at a set predetermined level that you MUST stick to.
As I talked about previously due to the extreme volatility of horse prices, what can be an early morning steamer can be a pre-race drifter with news coming out of the stable or via the trainer.
And particularly so when the horses start warming up, “going down”, and the on-course professionals get their first look at the runners and riders.
You HAVE to accept this as part of the sport. If you have already backed the horse and it starts drifting, you HAVE to Lay it off when the price reaches your predetermined Stop Loss.
You can of course leave a trade alone once it moves against you, and pray that your horse wins or loses depending on whether you opened with a Back or a Lay, but this strategy is a form of recreation known as “Gambling” which is a different kettle of fish altogether.
In setting a Stop Loss it is important to understand the concept of Market Spread.
In Stock Market terminology the “Buy” price of any given stock is always higher than the “Sell” price at all times. So it can be seen that the Sell price has to move to a significant enough degree that it is higher than the Buy price you paid in order for you to make any profit at all.
The difference between the “Buy” price and the “Sell” price is the Market Spread.
The situation is analogous but slightly different with Betfair.
You will see that at any given time the Lay price is higher than the Back price and so the Back price has to move to a significant enough degree that it is higher than the Lay price you paid, or conversely, the Lay price must move such that it is lower than the Back price you paid in order that your trade can possibly make any profit.
In reality we tend to work in such a manner that we are looking to Back horses at what appear to be unjustifiably long odds and hope that the horse begins to “steam” in, making the price shorten as more money comes in to Back it.
This will simultaneously pull the Lay price down with it and we can “Lay the horse off” to lock in a guaranteed profit, as I will demonstrate later.
As you learn to trade you will begin to notice that you win more than you lose as you start instinctively identifying and following common patterns.
As you become more experienced at spotting trends you will spot patterns earlier and act on them more quickly and more decisively.
I think it is important to remember that when you are winning you are taking money from punters who are less experienced and see the patterns too late or haven’t the insight to act on current available data, or have just made an incorrect decision on an event.
It may sound harsh, but that’s trading, and if you don’t win there is only one other option available.
• Fact 1: Betfair pays on average 15-20% higher odds than traditional bookmakers.
• Fact 2: More people make a profit on Betfair than they do with traditional bookmakers.
• Fact 3: Losing punters lose less money with Betfair than they do with traditional bookmakers.
• Fact 4: Between 80 and 90% of people using Betfair STILL lose money overall.
Yes, there it is, for all the internet hype, the bravado, the marketeers with their egos telling you this and that about the “Pot of Gold” that is Betfair and the Betting Exchanges.
The truth lies somewhere in the 4 facts above as stated.
By making statements about the “Pot of Gold” they are boosting liquidity via inquisitive short and medium term punters who are either transient or go on to get hooked.
Believe you me, this stuff is powerful, addictive and groundbreaking.
The technology is very advanced, reliable, exciting and innovative.
Because of the liquidity which it generates, even traditional on-course bookies and the large high street chains are using Betfair to hedge against large losses while on course when their books drift out of balance.
Watch the huge wagers coming in one minute before the off. This is the real big players and the bookies balancing their books.
It is very important to remember that trading is still essentially gambling.
Although you are not directly betting on the winner or loser of a race, you are still gambling that a price will move in the direction predicted, if you get it wrong your trade can only possibly lock in a loss rather than a profit meaning essentially that you have lost before the race has even started.
This is a particularly unenviable situation to experience. These are the type of occasions when you will see red and start making rash, uninformed decisions on nags that have 2 hopes. Bob and No!
Chasing your losses will only lead to the poor house, but we have all done it. If you cannot handle LOSS then you are the wrong personality type for trading or any other form of gambling and should keep your money in a high interest savings account.
If you make ill considered wagers, like anywhere else, you will lose money and if you are losing a lot of money the attraction will soon wear off, and Betfair will STOP being fun and profitable.
Who are the 10 -20% of winners and what are their common features?
•They are full or part time professionals
•They are experienced recreational gamblers
•They are often traders using all the tips, tricks, information resources and experience at their disposal.
•They often use powerful hardware and professional custom software and are prepared to lose money initially to learn their trade.
•They may use Satellite Information Services to watch the events live and gain an extra edge.
•They practice, hone and develop their skills and learn from their own mistakes.
•They practice a “series” of rigid systems that DO NOT ALLOW FUN BETS.
•They perfect their skills on one system and one sport before moving onto another.
So why Trading, rather than Dutching, Backing or Laying?
In my next article I will outline the various betting mechanisms available through Betfair, why they are so exciting and innovative, and why a lot of punters looking for long term profitability often come back to Trading.
There are punters doing well with Dutching Backing and Laying, but as I said before these strategies are more generally known as “Gambling”.
Gambling is innately a higher risk, higher reward, and higher octane type of strategy that I will be talking about in the future.
What I want to concentrate on first is “Trading”.
I will talk about the psychology behind online gambling and the discipline required to become one of the 20 % rather than the 80 %.
I will then move onto the rules of my Trading System that will enable you to start scalping, trading and hedging on Betfair to beat your opponents and set up an artery pumping cash directly from their account to yours.