Important things I’ve learnt about trading
Impossible is just a word
When I left my well established corporate job to ‘gamble for a living’ you can imagine the reaction I got.
It’s fair to say it wasn’t exactly an idea that people readily embraced. But here I am 20 years later and much better off, not only financially but spiritually and mentally. I really feel like I’ve peeled back a few layers of understanding of how the world really works.
Through these 20 years, I’ve had many obstacles put in front of me and hurdles to vault. You name it, it’s all been thrown at me and it got worse when I started talking publically about it. Throw in a software product and you can multiply that again.
You learn that if you are successful at whatever you what to achieve, expect somebody not to like it.
Ultimately none of that stopped me from achieving something really special and it taught me not really to care about what others think or do. If you are doing things for the right reasons, it’s more important to be at focus on that than to spend time trying to convince others that you do actually know what you are doing.
So whatever you are trying to achieve in life, don’t let anybody stop you.
Follow your passion with purpose and don’t let others put you off if they don’t understand! Ultimately, that’s their problem, not yours.
Learning to take risk
It’s OK to fail, is something I was never taught early in life. I had to learn how to take risks and that involves admitting you were wrong or that you have made a mistake.
When I was young I was given a clear impression that making mistakes was not acceptable, but only through trading did I learn that this didn’t matter.
I slowly learnt the opposite of what I was taught when I was young. If you are not making mistakes, you will probably not achieve progress. Some of my best strategies have developed from moments where I initially did the wrong thing. I didn’t give up, I just looked at it a different way.
Imagine walking through a forest and seeing a path. One path leads to a bad experience and the other to a whole new world. Most people will fear the errant path and just not take either.
Toss a coin and accept that you may end up on the wrong path, but learn to acknowledge and accept that and take remedial action. On the way back you will be laughed at, but at least you know the correct way to progress and you will make forward progress. Unlike those that laughed at you, but stayed on the same path.
Learning to accept criticism, rejection and making a bit of a fool of yourself now and again, actually builds confidence when you realise the consequences are not that severe. As long as you have a structured approach that is what you find in most markets.
As long as you keep disciplined, making mistakes isn’t really going to be a problem.
Probabalistic thinking
Much of the world and the debate that goes on in it, is very polarised and it’s got much worse since the advent of social media. People take a view, look for evidence to back it up and then try to win others over to their viewpoint. People are less tolerant of others viewpoints nowadays.
If you want to be truly successful and be a good risk-taker, you need an open mind and that means taking in new information and views and accurately discounting that information. Not dismissing it as incorrect, or making a binary decision. If you want to separate yourself from the crowd, make sure you do this.
The simple fact is there are very few decisions you can make, that are definitely right or wrong. All decisions, processes are a series of judgements where the outcome is somewhat fuzzy. If you let yourself be judgemental, that’s the wrong approach to trading. It forces to you make a decision out of proportion to the risk.
The world, even at a core level, is probabilistic in its nature. There are often no right or wrong answers just graduations of the correct answer and if you want to be a brilliant risk taker you need to work in the world of probabilistic thinking.
Success is entirely objective
When I started trading my first objective was to make my new job viable, that was how I initially measured success. After I achieved that, I felt that perhaps I should try and earn more than I did in my previous job. When I achieved that, I wondered how far I could push it. When I achieved my first major milestone….. Repeat for my career to date.
My point here is that ‘success’ is entirely objective and could ultimately never be fulfilled.
My long term aim and measure of success was really to do something new, unique that had never been done before. Plenty came out the back of that, including money. But money aside, from the perspective of viability and a gauge of whether you are doing it right, it wasn’t my objective. If it was, I would have stopped a long time ago.
Money is a poor guide, some people will do almost anything for money and if you are prepared to ask outside of what could be considered fair, you may get away with it. But you wouldn’t be able to sleep at night or live a fulfilling life. Bernie Madoff must have wondered every day when would he be caught, can you imagine that feeling?
So it’s important to have some other driver and guide on your journey. What do you want to do if you are successful at your chosen vocation? What is your ultimate aim and objective?
There are two types of intelligence
I’ve been very careful during my entire career to carefully document my journey. I had a view that people would struggle to understand it, so documenting and quantifying everything was an important part of what I’ve done.
Therefore I was surprised that seemingly very intelligent people couldn’t understand what I was doing or the points I was making. So the penny, eventually, dropped that there are two forms of intelligence. Emotional intelligence and intellectual intelligence. Intellectual intelligence can lead you into an ‘intelligence trap’.
If you are discovering new ground, it’s important to be able to quantify certain aspects of the market. So from an intellectual perspective, you need the ability to do that. But, of course, you can get somebody to do that if it’s beyond your ability. I’ve always prefered to avoid that if possible or I feel I’m missing some understanding. But I have brought people in to solve very specific problems from time to time.
Emotional intelligence is understanding what people are thinking and how they will act as a result. Ultimately that’s the key to understanding a sport and a trading market, the anticipation of an action. So ultimately you need both types of intelligence to be successful.
If you are too intelligent from an intellectual perspective, you may never truly understand the way the markets work. This is because they are generally not logical and can be quite counterintuitive. From an intellectual perspective, it’s easy to try to dismiss something you can’t understand.
Markets are quite often completely illogical.
People will disagree with you for no good reason
To paraphrase a comment I made in a video once. I said I was amazed that people will jump off a cliff to prove they can fly, just after you gave them a list of reasons they can’t.
I partially blame this on the modern way of communicating, but when people ask a question of me I give them the best response I can in the limited way you can communicate in the modern capacity. It’s really difficult to crunch 20 years of experience into a few lines.
But often when you dispense advice, people will still ignore it. Ultimately that’s fine, you should do what you feel is the right thing. But when you have worked hard to understand a very specific problem and give people the benefit of that knowledge, it’s really odd to see people disagree and then just the wrong thing anyway.
Ultimately I’ve learnt people tend to make a judgement first and seek to put in facts that support it, that’s doomed to fail. The world is full of people that make deterministic judgements in a probabilistic world.
The market and your P&L is the best marker of that judgement, but often I feel there is little you can do other than tell the truth and leave it to others as to whether they want to take that on board. You can’t force them to digest the truth, it almost needs to be learned.
The way you think is an edge
Thinking is work too, is one of my mantras. But the way you think can have a massive impact on what you do.
When I first started betting and trading for a living I was purely quantitative. I was looking for clear edges and neat solutions to complex problems. Over time though, I began to realise that lots of things just didn’t fit correctly. Things that should never exist seemed to be a permanent feature of the market and the only way to explain some things seemed to transcend normal mathematics.
That was when I discovered that human nature can often fill in those gaps and describe and explain some of the things that you see. If you can reach that deeper level it will make you realise the markets don’t work the way they should, but that this fact can create a big edge.
Everybody loves to win, but that’s not the key
Everybody focuses on strategies when trading or betting on Betfair or anywhere else. Furthermore, people really love to win, winning feels good and reinforces the view that they are doing well.
This instinct is so strong that people often pursue that goal at all costs, focusing on high win probability strategies where they can reward themselves with a decent looking P&L. Long term profitable trading doesn’t work like this though. A good strategy is only one part of one pillar of how to do this successfully.
People search for a shortcut or strategy that, “just works” so you can be sure the market provides (sells) them every system under the sun all promising easy riches.
In reality, you need to have a strategy but also a tactical arsenal to deploy that strategy in the market better than others. You also need to have some strict money management regime in place. But you also need to understand psychology. Your own psychology, your tolerance to risk and your own personal traits. but also that of the sports you are looking at and the market you are trading.,
Combine all those pillars and you will be successful, but miss one of them off and you may find you have a wobbly table that may just tip over given half a chance.
Summary
When I started writing this, I realised that I could add a few more things to this list, but I edited a few out to make this more readable.
Most people assume your edge in a market comes from some specific knowledge. But I’ve learnt over time that a lot of your edge just comes from the way people approach or behave in a market. If you can put yourself on the other side of that, you immediately get a leg up.
Doing that, however, is a little harder than it first seems. But it’s perfectly possible and can be an enduring edge.