Trading Horse racing : The going in-play problem. Yes, another thread about it.

The sport of kings.
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harsh
Posts: 131
Joined: Tue Jul 18, 2017 1:26 am

Fri Jan 26, 2018 10:02 pm

marksmeets302 wrote:
Tue Aug 08, 2017 10:56 am
It took me years to understand what is meant by "cut your losses, let your profits run". For me at least it means that you should try to lower the variance of your returns. As an example: let's say you let a lay at 2.0 go in-play just because you need 2 ticks to get to break-even. Unfortunately, the odds drop to 1.10. Then, the price reverses and you get matched. Woohoo! You got out at breakeven! But do this many times and eventually you will have a huge loss, significantly increasing the variance of your returns. The loss is so big that you are now forced to play with smaller stakes next time, and this will slow the recovery. Once I got this, I made it a habit to keep my mark-to-market risk smaller than the projected profits. I'm not saying this should be a hard rule (scalping is quite the opposite of this approach and there are people making money from that) but it certainly helps.

In the example above, if you already had accepted the risk of the odds going to 1.10, then you would not get out at 2.04 but would let the position expire. At least then you would get a favorable risk/reward situation. Knowing this beforehand you would not have used a large stake.

In the long term, trading is much more a game of managing risk and rewards than it is about identifying tops and bottoms, looking at indicators and what have you. Fortunately, risk and reward can be dealt with. They are just numbers and you can control them. Get it right and you will lose money slower. From there on you only need a small edge to become profitable.
This might help.

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