Hi all
Just watching one of PW's fantastic vids and a question occurred to me.
Let's say a horse racing pre-off back trade goes horribly wrong within seconds. Let's say I am looking at losing 50% of my stake. Surely in that situation, it is better to keep the position open than crystallise a 50% loss?
a, the price may come back for a near-scratch exit
b, the horse may win, offering much better value than taking the loss
Any thoughts? Anyone crunched the numbers as to at what % loss the risk/reward tips in favour of keeping the bet open?
And if this is a viable "safety net" then I have just realised it would be much more likely to "win" if that initial trade was a lay.
Cheers,
JR
Keeping open position when red
I've done the same type of thing quite a number of times, but the reality doesn't really fit with the theory. Sure, it might come back to scratch (or better), but you'll have to do it every time; you can't pick and choose when to do it, and you'll find overall that it makes no particular financial difference in the long term. And if you think "scratch or better", then that involves making a decision in-play, which is a different ball game entirely to pre-race. If you let it ride and the horse wins (after a big drift), then you're left with a terrible value bet. If it loses, you'll think "Why didn't I cut it at off-time or when it went lower in play?"
And it probably induces more psychological damage too. 35 years ago, when sitting on a small loss in financials which then got much bigger, a senior guy said to me; "The first cut is the cheapest." He was right then and he's still right now. It's a horrible can of worms. My advice is not to open it.
And it probably induces more psychological damage too. 35 years ago, when sitting on a small loss in financials which then got much bigger, a senior guy said to me; "The first cut is the cheapest." He was right then and he's still right now. It's a horrible can of worms. My advice is not to open it.
To lose 50% of your stake in seconds then someone must have put in a huge amount of money in (unless you are trading in an illiquid market) and you have been caught on the wrong end of a huge spike. Most of the time (not always) the market will correct after a large spike like this and will come back, sometimes all the way to where it was trading prior to the spike.
Experienced traders like PW will be able to tell with a very high degree of accuracy if there is likely to be a re-tracement, and stay in the trade if they think that's going to happen.
If instead your talking about losing half your money in a fairly rapid move but not because one actor has placed a massive bet into the market, then there is usually a reason for this. The cause for a move that big can often be seen if you are watching the live pictures, and hopefully if you are paying attention you will be able to get out of your trade before you have lost half your money. The experienced traders will probably look to take advantage of what is happening on screen, by closing their current trade and opening another one, not necessarily on the horse that is having the problems.
If you watch PWs and other peoples vids on youtube you should notice that they pay as much if not more attention to what is happening to the prices of the other horses in the race. There is a very good reason for this, the price on your horse cannot move very far unless prices start to move on one or more of the other runners.
There is often a time lag of a few seconds between a strong move (perhaps trading through a cross over with some momentum) on one of the other runners, the direction of which is bad news for your trade, and that move starting to affect your trade in a bad way. Experienced traders will have noticed this and will be out of the trade with perhaps 1 to 4 tick loss.
New traders meanwhile will be fixated on the ladder of the horse they are trading on, and wont have noticed what has just happened to the price of the other horse that has just smashed through a cross over point.
Next thing they know there is a rapid move against them and they are suddenly down perhaps 12 ticks and they have no idea why.
Pre off horse trading is difficult, it takes most people who do eventually become profitable a long time to learn how to be successful.
Experienced traders like PW will be able to tell with a very high degree of accuracy if there is likely to be a re-tracement, and stay in the trade if they think that's going to happen.
If instead your talking about losing half your money in a fairly rapid move but not because one actor has placed a massive bet into the market, then there is usually a reason for this. The cause for a move that big can often be seen if you are watching the live pictures, and hopefully if you are paying attention you will be able to get out of your trade before you have lost half your money. The experienced traders will probably look to take advantage of what is happening on screen, by closing their current trade and opening another one, not necessarily on the horse that is having the problems.
If you watch PWs and other peoples vids on youtube you should notice that they pay as much if not more attention to what is happening to the prices of the other horses in the race. There is a very good reason for this, the price on your horse cannot move very far unless prices start to move on one or more of the other runners.
There is often a time lag of a few seconds between a strong move (perhaps trading through a cross over with some momentum) on one of the other runners, the direction of which is bad news for your trade, and that move starting to affect your trade in a bad way. Experienced traders will have noticed this and will be out of the trade with perhaps 1 to 4 tick loss.
New traders meanwhile will be fixated on the ladder of the horse they are trading on, and wont have noticed what has just happened to the price of the other horse that has just smashed through a cross over point.
Next thing they know there is a rapid move against them and they are suddenly down perhaps 12 ticks and they have no idea why.
Pre off horse trading is difficult, it takes most people who do eventually become profitable a long time to learn how to be successful.
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ShaunWhite
- Posts: 9731
- Joined: Sat Sep 03, 2016 3:42 am
It's something I've been meaning to do stats on but it requires an assumption which I don't know is correct.....
Is it the case that, over a large sample, backing/laying the favourite blind, that it would cost you approx commission + a small overround?
If that is the case, then logic would suggest that once a trade had gone wrong by more than n% then letting it run would be the best option, so long as you always let it run to the finish.
I know it's fraught with danger, technically and mentally and for those reasons alone it might be a complete non-starter, it also flys in face of all received teaching and wisdom. But if nothing else I'm a fully paid up contrarian, even though that means I spend half my life working out that I'm wrong and everyone else was right afterall, but if you don't challenge the system.....
Happy to be proved wrong, then I can move on to being proved wrong about something else
Is it the case that, over a large sample, backing/laying the favourite blind, that it would cost you approx commission + a small overround?
If that is the case, then logic would suggest that once a trade had gone wrong by more than n% then letting it run would be the best option, so long as you always let it run to the finish.
I know it's fraught with danger, technically and mentally and for those reasons alone it might be a complete non-starter, it also flys in face of all received teaching and wisdom. But if nothing else I'm a fully paid up contrarian, even though that means I spend half my life working out that I'm wrong and everyone else was right afterall, but if you don't challenge the system.....
Happy to be proved wrong, then I can move on to being proved wrong about something else
Last edited by ShaunWhite on Wed Aug 02, 2017 3:09 pm, edited 1 time in total.
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ShaunWhite
- Posts: 9731
- Joined: Sat Sep 03, 2016 3:42 am
I think i've already realised why I'm wrong. For the trade to have gone bad I'd have taken a price considerably worse than SP. So forget that 
Thanks for your thoughts. Is it not this simple?
In the case of a back bet which goes wrong to the tune of 100% or more (i.e. you stake £2, and the price moves such that you'll lose £2 or more to close, then clearly it is better to leave the bet open, regardless of what SP ends up at.
In the case of a lay, the loss on closing the trade would need to be greater than the liability for it to be a better option to let it run.
JR
In the case of a back bet which goes wrong to the tune of 100% or more (i.e. you stake £2, and the price moves such that you'll lose £2 or more to close, then clearly it is better to leave the bet open, regardless of what SP ends up at.
In the case of a lay, the loss on closing the trade would need to be greater than the liability for it to be a better option to let it run.
JR
How do you lose more than 100% of a back stake?jamieric wrote: ↑Wed Aug 02, 2017 10:21 pmThanks for your thoughts. Is it not this simple?
In the case of a back bet which goes wrong to the tune of 100% or more (i.e. you stake £2, and the price moves such that you'll lose £2 or more to close, then clearly it is better to leave the bet open, regardless of what SP ends up at.
JR