How I successfully minimise my losses
Why am I so open about my trading results?
You’ve often seen me posting my Betfair trading results, and there’s a very good reason why I do this. It may not be what you think, but it tells you a lot about how I trade and manage losses.
So when I post my Betfair trading results, people generally understand what I’m doing and why I’m doing it. Inevitably, you get a small minority who simply just do not get it. But there are some obvious reasons as to why I do this.
Primarily, I want you to know that I’m still doing this! In an industry dominated by opinion and minimal fact, I think it’s critically important that you know that I am sitting here on the same software you were using, clicking away, doing the same sort of stuff.
I’m sharing those big highs and those lows with you, going through the whole experience of emotions.
My incentive is a bit different from yours; nonetheless, this is the job that I was made to do. I love every aspect of it and am so glad I ended up in this place. So, you see, even without any other incentive, I would still be here doing it.
Through the highs and lows…
Every now and again I’ll post a P&L. Some days I may rip through a card with ease, other days may prove a little harder. But I won’t post anything where I think my result is exceptional. But other days look ‘ordinary’ to me. Days where classic trading traits, like keeping losses small and keeping your discipline, were the key on that particular day.
In the example in this blog that I have used, I have posted some results and said this is a good example of correct money management. This was because I lost quite a few of the number of races I traded.
Now, this wasn’t an exceptional day by any means. If you want an exceptional day, then I can describe that to you as well, but the reason for doing the tweet was that this was a good example of precisely what your objective is when trading this market in this particular style.
So what I was doing here was I was trading pre-off racing, so I was in the market 5 to 10 minutes out. I was exiting at or about post time, and I was in the market for just a small period, five to 10 minutes, sometimes a little bit shorter. When I hit that hedge button at or near post time or the off time, that was the result – Win or lose.
This wasn’t betting, it wasn’t, laying horses or anything like that. This was proper, pure trading.
That’s an important point to make. If you back, lay or trade in-play, your results can be significantly flattered by the underlying event. If a football team scores more goals than expected, favourites win more often than expected or any of these types of things, then your results will be flattered.
You can produce very flattering P&L’s in this style, but the risk is effectively hidden in losses that are yet due. So you end up with a generally false picture when you post a P&L that is somewhat reliant on the underlying outcome of a sport.
When I trade pre-off, what you see is what you get; there is no reversion to mean. I traded in and out in that small period before the race started, and it’s pure profit.
Trading: more reliable than betting
If you do a value bet and lay a horse at sixes, you will win 83% of the time. If you do that in running and you do a small trade in running, you will win at a much, much higher percentage rate. If you do a small tick trade, you will likely win. That is, until something happens that brings in a loss, it will be a whopper!
I love pre-off horse racing trading because there’s so much of it, and it’s a pure trading market. Any other factor does not influence the outcome. Therefore if you trade this market at random, you will get truly random results.
If we back a horse ten minutes out and then we trade out at post time, you will find that 50% of the time you win money, 50% of the time you lose money, and you will end up at break-even overall. Therefore, the market base rate for pre-off trading is 50%. If you do it randomly, you will get a 50% strike rate.
When you look at my posted results, you will see that I’ve lost 15 out of 54 races. That makes my actual strike rate 75%. So that contains some information – I am trading at 25 per cent above the base rate, and I am doing something that is allowing me to pick off those trades and elevate my base rate much higher than random.
So, my theoretical edge there is quite large, but it’s because I’m trading. I can’t make thousands on each race because I will only earn a percentage return on my stake.
So if I have a £500 stake, I will never risk that £500 in the market. The way I’m looking at it on pre-off Racing is I’m going to put £500 in the market, I’m going to take £500 out, and I will win or lose a small part of that money.
Even without a 100% strike rate, you will still land a profit by the end of the day
When you look at those losses, you can tell that those losses must be relatively small in proportion to the gains that I’ve had. Part of that is because the strike rate is relatively high anyway, I can afford to have slightly more significant losses than my gains and still make money.
Want to learn more about this topic? Check out this video after reading this blog post! https://youtu.be/kdJMvqOZK8o
The most important thing to understand when you’re trading any market, is what is that base rate and how do you measure your success above that?
So you can see I’m winning 75% of races, and I’m losing 25% of races, but obviously, that puts everything in my favour as long as I don’t let those losses get out of control.
The best way to illustrate this is to explain some I bought in San Francisco recently. I picked up this little device called a Galton board.
This demonstrates the concept of normal distribution. So, in a way, this is a pre-racing market because what’s happening is that most of the results will be plus or minus nothing. However, now and again you can get an exceptional positive or negative result.
How do I tackle avoiding losses?
One of the key ways I trade is to try and avoid some of those losses.
When I started trading, I was trying to avoid making mistakes. That’s where I suggest you start, I looked at the market, could see it was 50/50 and I thought, well, if I do this or if I do that, how does that influence what I trade?
I then went into the market, trading every market the same. The problem was now and again, I would get that bell curve on one side where I’d get a huge loss.
My first tip for avoiding a loss!
My attitude to minimising this problem was to identify what races losses would tend to occur on and then not trade them.
Not getting yourself into that position in the first place is a great way of improving your trading. You’re not under the obligation to trade every race! If you turn up to a race and you think, I have no idea what’s going on here, don’t trade it. It’s a brilliant way of avoiding a loss!
When you first start trading, you’ll likely have one strategy that you’re predominantly using, and if you apply it across all of those races, some of those races, it’s just not going to work very well.
So your first step to moving yourself towards profitability is to eliminate races you don’t understand and are more likely to lead to a loss, then……. don’t trade them.
Not every market is the same – so don’t use the same strategy for all
So here I am saying be selective, but I traded 54 races in a session!
One of the reasons that I can trade 54 races in a session is that I’ve got a strategy for almost every market. If I look at the markets on that day, I’m thinking, “Well, that’s probably going to work here, and that will probably work here”. That’s something that comes with experience; when you look at my P&L, that’s 20 years’ worth of experience.
But also, let’s look a bit deeper at that. There are 54 races, £972 in profit, and if you divide that profit by 54 races, you’ll end up with an average profit of ‘only’ about £18.
If I said to you, go out and make a thousand pounds today by trading on the racing, you would probably go, how am I going to do that? But if I said your objective is to make an average of £2 a race, that’s much more achievable.
If you made £2 per race on average over 54 races, you would end up with £108 overall. That tiny objective is much more achievable than stretching for a bigger target.
So one of the things I’m doing when I’m approaching each of these individual races is I’m just trying to stay out of trouble but get a little bit of money out of the market. I could start the day with four losses, three wins, two losses, seven wins, and then a couple of bigger losses – I don’t care!
I don’t set myself a target and say, right, I’ve got to make £1000 by the end of the day. How am I going to do that?
That forces you to make errors, but if you approach the market systematically and structurally, you just chip away at each market. You don’t pay too much attention to what happened in the market before this one, whether it was a loss or a profit. You chip away, and you keep doing what you can.
At the end of the day, you fire up and look at your P&L, and you think, oh, that went well!
Your objective is stretched out over all of the races you will trade. By doing that, then you automatically trade better when the opportunity is there, and you trade more defensively when the opportunity isn’t there.
If we look at that result and compare it to the summer, that result would be much larger. Why?
It’s simple, there will be more races, it’s as simple as that. If I did an average of £18 over 70 races or something or even more than that, then obviously, naturally, you would get a better result at the end of the day.
Remember: Picking opportunities and treating your objective as a broader one is a good way to cope with losses.
Don’t overthink when a position goes wrong.
When I’m in a market, and a position goes wrong, people often tell me it would be great if you could show me a losing trade.
I disagree because what happens is that I go into a market, I try and take a position, and it doesn’t work out. So I exit it. There is little further thought process.
I went in for a specific reason – it went wrong, I then closed my trade and that’s all I do. I don’t do anything to try and recover the trade because that turns your trade into something completely different. I don’t double up my stakes, I don’t get more aggressive on the next race or anything like that.
It’s just okay that I got that wrong. I open up the next market and carry on. I just trade systematically through the day just like that; I don’t do anything clever.
There are some ways of minimising losses. Like I said, pick a strategy suitable for the market; if you don’t know what you’re doing or don’t think of an appropriate strategy, avoid it. That will minimise your losses.
Additionally, I tend to participate in markets with a lot of liquidity. One of the reasons for doing that is that if a lot of money is coming through the market, I can get rid of my trade immediately. I don’t have to think about it.
If you’re in a weak market with no liquidity and trying to exit a position that’s going against you, you just make it much worse for you.
Accept not all markets will be a profit.
If all of the conditions aren’t there for me to do the trade and to be able to exit cleanly, I won’t do it. I have to accept that that market isn’t going to work.
Ultimately, what you’re trying to do is precisely what I’ve done with that Galton board.
If you see it on my shelf, it’s tipped slightly to one side because that’s how I trade. I’m not looking for some amazing mega trade and waiting all day for it. I’m not doing something to avoid losses; all I’m trying to do is accept that the market is sort of going to be a 50/50 shot.
I’m just trying to tip it gently in my favour by taking slightly better positions and slightly better markets with roughly the right strategy.
It’s fundamentally the same way that I have traded for many years.
If you don’t let your losses get out of control, then you won’t destroy a lot of the profits that you’ve made on the other side.
On this particular day, I didn’t have any significant negatives. Looking back over the last month, I’ve probably had a few races where I’ve lost a bit, somewhere between £100 and £200, but that’s dwarfed by the trades that have gone exceptionally well.
I can earn thousands over the day if you look at an excellent Saturday result. In the example in the video, it’s nearly £3000.
How could I possibly achieve that? Well, it was Champion’s Day. It has got much bigger markets, much more liquidity, and bigger targets to hit regarding the race size and how much they stood out from the rest of the card. So naturally, my results would rise, but I didn’t post that P&L because that was the benefit of twenty years’ worth of experience. I wouldn’t expect somebody to be able to do that or on the same scale.
By and large, what you’re trying to do is accumulate a profit over a period of time. You’re not looking to do anything weird or special in order to get to that total. That’s primarily why I highlighted my ‘normal’ P&L; I thought it was a good example of that.
Checklist to minimise losses
So let’s summarise how to minimise losses: –
- Don’t set a target: It’s going to go up or down over the course of the year based upon a number of races and the quality of races. You’re just trying to do the best you can in the markets that you’ve chosen and that will allow you to build a better result.
- Make sure that you pick and choose markets that are suitable for your strategy. if you’re starting out, you’ll find if you’re using one particular type of strategy, it may work better on some markets than others, so just avoid them. Not all races will need the same strategy.
- Choosing a race will high liquidity means that you can exit that trade as a minimal loss or the smallest loss that you possibly can
- You need to accept that losses will happen: you have to be able to say – I have made a mistake and I am getting out of there. Don’t try and fix it, move to the next market with a fresh start.
That is the way that I suggest you trade, and hopefully, looking at that P&L that you saw will give you some confidence and reassurance that that’s exactly how I trade and something that you should aim to replicate.
That’s primarily one of the key reasons for making a post like that is to make you realise I act just your average trader. I hope that and the advice I’ve given here will positively influence your trading going forward.