Newbies Trading in the Dark

Learn sports betting strategies and discuss key factors to consider when placing a bet.
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James1st
Posts: 318
Joined: Thu Apr 16, 2009 10:28 am

I have perused this forum and its 1500 posts and find it astonishing that nowhere in its history is there any fundamental advice for folk who are new to trading. Drawn here via the lure of riches and the postings of other successful traders with their 6 figure P/L’s, many newbie traders do not realise that they are walking into a lions den…and what is worse, they don’t even realise that they need to arm themselves for the battle ahead.

Learning a strategy, buying an ebook or a bit of software does not make one a “trader” and the whole idea that untrained and unprepared trading virgins can immediately compete in the highly honed and sophisticated environment of the Betfair betting exchange is simply false advertising and disingenuous advice. Having spent years trading in the stock markets, getting used to trading in Betfair has required another significant quantum leap in my knowledge and learning. It has not been easy.

What I have learnt after quite a long time trading is that until any “would be” trader addresses the following 6 issues, he is doomed to failure:

1. You must have an “edge”
2. You must fully understand simple trading patterns and the mathematics of trading
3. You must develop a trading plan and execute it flawlessly
4. You must lose before you can learn how to win
5. You must obliterate all character weaknesses that affect your trading
6. You must work harder than you imagine to achieve success

An Edge

Do not be fooled by the seeming ease by which several well-known and successful traders ply their trade. It may look like they are trading randomly whenever you read their blogs or even watch their videos, but in reality, they are following, very precisely, well tested and statistically proven entry and exit points. Whether they choose to lay or back at a particular juncture is not a random choice but is based on the simple fact that that particular “trade” will have a statistically higher probability of success than failure. If it were not so, then they would indeed be “net losers”.

Before you can become a “net winner”, you must identify a circumstance or circumstances, by whatever means and using all the data available, where your chances of a successful trade will result in a “better than evens” return. Whether you choose scalping or swing trading, this is a fundamental requirement for success. Tossing a coin to decide whether to back or lay first in a single scalp trade will result in a net loss (after-tax). Even a 7yo knows that truth.

No-one, I repeat no-one who is a successful trader will be imparting their “edge” on these pages, so this is a task that requires a lot of personal research, much testing and the chosen methodology must define simple executable entry and exit points. Of course, there are many suggestions of where to look for an “edge”, the most common (but not necessarily the best) is the behaviour of the Weight of Money (WOM) favoured by many traders. Others include moving averages or more sophisticated MACD or Candlestick analysis, Elliott wave patterns or Relative Strength Indicators. However you reach your “edge”, its potential strength and its frequency of occurrence is fundamental to your trading future; quite simply, “guessing” is not an option.

Do you really believe that some people “guess” better than others on a consistent and long-term basis? What those “apparent” guessers are actually doing is tuning into the wave patterns that drive the markets by recognising and acting upon repetitive patterns that occur in a pre-race market. There is nothing mystical about how these people trade, they do have a trading plan that supports their chosen advantage or “edge” and although their chosen methodology is less formal than others, some do succeed for considerable periods.

Whatever edge you choose, it is vitally important that your Trading Plan supports it fully and comprehensibly.

I will post, very soon, what I have learnt about Issue 2 above.
gallybloke
Posts: 41
Joined: Sun Nov 01, 2009 1:25 pm

Nice post looking forward to your veiws on the other points
wavydavy1954
Posts: 2
Joined: Tue Dec 22, 2009 1:26 pm

Thank you for your informative post.
I am one of those in the dark and I look forward to following you observations and comments.
ovcica
Posts: 1
Joined: Sun Jun 06, 2010 11:09 pm

Thank you for posting this! Very good read.
James1st
Posts: 318
Joined: Thu Apr 16, 2009 10:28 am

Thanks for the replies, I will continue...

The Mathematics of trading

To my mind, successful trading is the understanding and managing of a simple truth…you need to win more than you lose. This seemingly simple statement is much more difficult to achieve than you may think possible because how much you can win is unlimited but it takes a ton of discipline to ensure that your losses are very strictly controlled.

Scalping (the act of buying/selling odds for small gain) is generally defined as single tick trading but does allow for the possibility of 2 or 3 tick gains. Obviously no one will be surprised when I say that you need to have a success rate commensurate with your gain, in order to make a profit. As I stated before, a 50% win rate on single tick trading will net an overall loss after tax, so it follows that you need a better than evens “edge” to profit from trading. Generally speaking, some traders are happy with 66% whilst others improve their edge to reach an 80% success rate. Another route is to develop an edge (much harder to do) that gains 2-3 ticks, at least “some” of the time, understanding that (success rate*tick gain less failure rate*stop loss) = profit, is not a complicated bit of math.

What’s this “Stop Loss”?

Not every trade you participate in will win and this is one of the most difficult pills for newbie traders to swallow, but it is a fact of life and of trading. Just accept it and get used to it…you will sometimes lose. Fact: you are certain to sometimes lose and how you manage and react to those losses makes the difference between success and failure.

Using a Stop Loss (right click on odds) is essential when trading whether or not you choose to operate a mechanical version or be always prepared to sell out your trade manually and in accordance with the strict rules of your trading plan. One of the major reasons why most traders fail to make a profit is quite simply NOT following their trading plan that stipulates that you MUST have a stop loss limit. Consistently breaking or moving stop loss limits whilst trading is the sure way to lose all your capital; just don’t do it. This single lesson is one that I personally took too many attempts to learn.

success rate*tick gain less failure rate*stop loss = profit
50%*1 less 50%*2 =LOSS

Boy, this is getting tough for the 50% coin tossers who fail to manage their stop losses.

The “scratch trade” is a very useful tool in the scalper’s armoury and getting out of a bad trade for a zero win or zero loss will help in keeping your success rate up to that defined in your trading plan. On the face of it, life is tough for scalpers who make even the slightest mistake in their Trading Plan, simply because the leeway between %age Success and Stop Loss is zero (or 1 at best).

Obviously swing traders are in a better position to allow some flexibility between their success rate and their stop losses, but swing trading (looking for long up/down moves in the market) has its own drawbacks. For a start, they are fairly infrequent and they often fail to materialise despite affirmative “signals”. They sometimes break down and can leave you in a negative tick situation. However some traders prefer this method of trading despite the less than 50% success rate because the tick reward verses the stop loss can return greater profits, but only if they are managed expertly.

What I have learnt about winning at trading is that it is simply the application of basic mathematics and ensuring that your trading plan is both profitably viable and precisely executed. Winning ticks is not where your efforts need to be concentrated; it is in correctly managing the losing ticks that makes the difference between success and failure. Most traders are net losers and the primary reason is a failure to manage their losses.


Simple trading patterns

The most important thing to understand about pre-race trading markets (during the 15 minutes leading up to the race off time) is that the market is either trending or ranging. For most of the time the market ranges between 2 sets of odds (usually where most money is being matched) and this “range bound” area is where scalpers ply their trade, always aware that the market may start trending at any time (going outside this range and heading north or south).

There is no magic indicator nor is there any forewarning just what the market will do next and all we can do is to rely on our trading plan to ensure that our stop losses are correctly positioned and that our exit strategy is managed efficiently.

Indicators (those I mentioned in post 1) are generally speaking “lagging” indicators (they come after the known facts), however WOM (but not the moving average) is a “current” measurement, as is price movement. There are many graphs available in Bet Angel and whilst some people may find them useful, I have yet to see any proof that they are predictive by any consistent or profitable degree.

However, an “edge” has to be found amongst the price movements you observe either in the ladder or in the graphs and that edge has to be consistent enough to form the basis of your trading plan. Perhaps the most widely publicised edge is formulating a trading plan around the price action when odds reach the top or bottom of the ladder history.

The pre-race market is not difficult to understand insofar that layers push the odds out and backers drive them down. Trying to fathom when and why this is so is more complicated than solving a Rubik Cube in microseconds and people who tell you that they can predict such events, are simply basing their prediction on known events such as “how many tipsters have advised this particular horse” or other equally unreliable data. None of them can predict just when a horse is going to sweat up in the paddock, so disregard these outrageous claims as bunkum. No one can predict market movement and a best guess based on historical patterns is the only tool available.

When you have studied thousands of graphs you will be able to tell (sometimes), at which points the layers are in control and conversely when backers hold the upper hand. However and bearing in mind that 90% of the liquidity in any market is created by traders themselves, it mostly boils down to a battle between traders since traders both lay and back the same selection, usually within seconds of each other.

A peculiarity in Betfair markets is that unlike stock trading, odds have a habit of accumulating traders (sheep) who forget when to stop laying or backing and as a consequence, odds often overshoot their natural position. The effect of this enthusiasm is to cause more pullbacks than would occur in a more conservative stock market.

Odds never move in a straight line and the typical “wave” pattern of rising or falling prices is easily observable on most graphs. There is some merit in the study of these patterns, as they often repeat themselves and some traders capitalise on the statistical data that indicates whether the next tick(s) is likely to be up or down. That is not to say that any trader can guess with any degree of certainty whether the odds will go up or go down but if they can do so with a better than 50% success rate then they have the means, through simple mathematics, to make a profit on that ability.

(Part 3 coming soon)
Mug
Posts: 182
Joined: Wed Mar 31, 2010 9:53 am

Nice to see somebody posting up lots of stuff but far too complicted I think. You can back at the lay price and lay at the back price and you want to do it at the least possible risk. That's all there is to it.
neeeel
Posts: 70
Joined: Mon Apr 20, 2009 2:13 pm

Mug are u a profitable trader?
how long have u been profitable for?
RonA
Posts: 7
Joined: Wed Apr 29, 2009 12:47 pm

Looking forwards to part 3 an enjoyable and informative read .
wavydavy1954
Posts: 2
Joined: Tue Dec 22, 2009 1:26 pm

Once again thanks for the latest post,

I have tried backing at the lay price etc only to see the market race off in the other direction.

The stop loss I post disappears when I switch to view other markets and I am out of pocket
?
So I dont mide explanations being"complicated"
if they are positive and can be done.
Keep it up please.
yours Wavydavy
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dan_payne182
Posts: 93
Joined: Wed Oct 28, 2009 3:46 pm
Location: Nottingham

wavydavy1954 wrote: The stop loss I post disappears when I switch to view other markets and I am out of pocket
?
If you add the market to guardian betangel will continue to monitor and execute commands in that market :)
petemalta1
Posts: 10
Joined: Mon Jun 01, 2009 10:49 am

deary me


why not just do it intuitively and make some money- and have fun?
blackfriar
Posts: 21
Joined: Thu Aug 27, 2009 3:06 pm

I think this should be stickied for all the beginners to read. However, the general gist ('You can't expect to be in profit by simply guessing a market') comes to you quite naturally after you have played with the markets, especially pre-race horses, for a month or two and have inevitably lost some money. That's why everyone says use the minimum £2 stakes - so it won't hurt you.

I agree that lots of parties promote the lure betfair trading in an unrealistic way, which to the average Joe, will only cause financial upset. However, it's no different to the way brokers, software vendors or tutors of financial markets promote their latest golden ticket to market success.

I first dipped my toe into betfair trading on pre-race horse markets and in hindsight I think that's a bad route for a newbie. It looks alluring because the price changes quickly and there are lots of apparent opportunities - but for every 1-2 tick opportunity where a newbie makes a profit, they will lose out in a price movement away from them by 3-4 ticks. Sit in front of a computer for a day, repeating that ad infinitum, and you'd need the patience of a saint not to start steaming and developing bad trading habits.

I'd say start with football and cricket markets, with live pictures, and minimum. The OP is right in that no-one in their right mind would divulge their 'edge' to you, certainly not without charging a fee, so you just need to put the hours in to make trading work long-term.

James1st, if you don't mind saying - how is it you've had years of financial market experience but are now looking at betfair? I've always viewed betfair as a more beginner-friendly market, which could indicate if a trader had the necessary psychology to make it in the larger financial markets? I know they are two very different beasts, but still... Cool thread mate!
James1st
Posts: 318
Joined: Thu Apr 16, 2009 10:28 am

Thanks for the comments guys. I’m glad someone brought up the reverse book strategy because as a solitary “edge”, it is a matter of simple mathematics (as I said in my last post) to demonstrate that it is a losing strategy. To back at the lay price and scalp by laying at the back price as a singular trading action (without any other considerations) assumes that you are trading the odds downward. However, to get your bet taken you need the market to go upwards and if the market goes upwards your scalp (lay at the back price) is lost and you are now 2 ticks away from profit. Mathematically there is a 50% chance that it will go either way, so it doesn’t take a genius to work out that you have a 50% upside versus a 75% downside to that strategy. Nothing wrong with reversing the book, but as a “complete” trading plan it has a negative “edge”. Auto Stop Loss will be lost if you switch markets but if you are following a strict plan, maybe you should not be switching markets (or getting distracted at all?) whilst you have a live trade in the market.

Petemalta: Losing money at Las Vegas is fun. Making money isn’t fun, its hard work.

The Trading Plan

Ideally your trading plan should be really simple because you may have less than a second to recognise your entry trigger and complex plans take too long to execute. A trading plan is a set of simple rules that you intend to live or die by and having them written down and pinned to your desk will force you to abide by the trading plan with absolutely no deviation. If your “edge” is unclear then you will have problems making instant decisions, so it is best to define the edge as a simple entry and exit point. Executing your trading plan (as written down) should be such a simple process as to require no thought in its execution, so its wise to remove any ambiguities as soon as possible.

For reasons that I will discuss later, the first rule of trading is to remember that you are “trading” and not gambling. That means you will be settling your trade at the 60 second call, come hell or high water!. The final 60 seconds of the pre-race market is a time when many traders are getting out of their positions and the volatility is sometimes crazy…just don’t get involved and make sure you are out before the mayhem erupts. Most novice traders will “go to the wire” when trading and some even go “in-running” rather than take a loss and that is the certain way to the poor house. Here now is a set of Trading Plan rules as an example:

RULE 1: I will exit my trade, win or lose, at the 60second mark.

RULE 2: eg** I will LAY when WOM > 66% and there is a £3000 or more bet at the front of the Lay queue (this is your ENTRY point). My bet is placed ahead of the £3000 bet.

RULE 3: eg** I will BACK when I make 3 ticks or when WOM < 50% (this is your EXIT point)

RULE 4: My Stop Loss will be set at 3 ticks below ENTRY point and will be set immediately my LAY bet is taken. I will never move my Stop Loss to greater than 3 ticks.

** This is a fictitious “edge” for the purposes of this demo. Please define your own edge.

RULE 5: I will not trade on All Weather races

Etc


Just a word on the importance of Money Management. Most beginners seem to get the maths totally wrong when starting out and often over commit them selves by employing different stakes/liabilities and different stop losses with no idea about what their profit expectancy should be. As a suggestion, I would recommend an active bank* of no more than £100 (more is less, as we will see later). Stakes should be proportional to the odds being traded (£20 at 5/1 or £50 at 2/1) and the Auto Stake.Auto Update is a useful way to learn about staking. I would suggest that you further split your stake into 4 parts** and use 100% of your bank on each trade (later, when your bank grows, this will reduce to 10% of your bank on any trade). Depending on your trading plan and the “edge” you have defined, your Stop Loss should be set 4-5 ticks away (at between £2-3 loss) with a profit expectancy of around £2-3. In stock markets, win-loss ratios are generally 2-1 or 3-1 but in Betfair you will do well to average just over 1.5-1 ratio. Scalping was discussed earlier and obviously Stop loss needs to be set very tightly compared to swing trading and the profit expectancy depends on how many scalps are completed within the given time of the Trading plan.

*Active Bank is the sum currently being employed in your account, all other monies being shifted to the Australian?Account. (You can scale the £100 recommendation down to whatever suits).

** 4 part stakes.....more of this later

Summary to date:

So far we have covered the need to have a clearly defined edge and how that edge forms the basis of your trading plan. We have discussed how to calculate whether you have a winning strategy mathematically speaking and also the importance of being precise in definition and execution of your plan. We have also covered the ranging and trending of odds and how they can help us define an edge. Striving to eliminate errors and other mistakes and personality traits will be covered later.


Next time I will tell you why you have to lose before you can win at trading.
Morph
Posts: 45
Joined: Tue May 05, 2009 4:38 pm

Thank You James for taking the time to share all of this good stuff. Like others, I am looking forward to your next post.

In fairness to others who have advocated starting out trading randomly. I guess they have felt that dipping a small toe in the market is a good way of learning market dynamics and getting used to stop-lossing.
Mug
Posts: 182
Joined: Wed Mar 31, 2010 9:53 am

James1st wrote:Thanks for the comments guys. I’m glad someone brought up the reverse book strategy because as a solitary “edge”, it is a matter of simple mathematics (as I said in my last post) to demonstrate that it is a losing strategy. To back at the lay price and scalp by laying at the back price as a singular trading action (without any other considerations) assumes that you are trading the odds downward. However, to get your bet taken you need the market to go upwards and if the market goes upwards your scalp (lay at the back price) is lost and you are now 2 ticks away from profit. Mathematically there is a 50% chance that it will go either way, so it doesn’t take a genius to work out that you have a 50% upside versus a 75% downside to that strategy. Nothing wrong with reversing the book, but as a “complete” trading plan it has a negative “edge”.
With respect to the effort you are putting in to help others, this section appears to be complete baloney. Either that or I have completely failed to understand it?
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