Discipline is paramount if you are to become a successful trader.
Everyone can have a successful day, even a week or a month speculating on a market but to consistently produce profits over the long term you need to think like a trader. Below are just a few rules you may want to consider when executing your trades.
1.) Managing your bank......don't put all your eggs in one basket
There is no right or wrong staking plan when trading but once you have decided how much you want to deposit in your 'trading bank' limit, you need to decide the 'maximum loss' on a single trade. Many traders will not risk more than 5% or 10%. Also be careful not to chase your losses. Should you have two losing trades and lose 10% (5x2) of your bank do not double up. There may be three winning trades just around the corner. It is not a sprint but a marathon. Wait until you have a healthy profit before you change your rules. If you are losing, you must be doing something wrong and therefore should not be risking more. Even consider reducing your staking plan.
2.) Know your entry and exit.....and patience
A disciplined trader will choose his level, know his entry and exit...and he will stick to it. If it does not hit his level he will not make the trade. Chasing the market is a dangerous game. While it may not seem to be the case at the time there is always another trade. A trader is playing a percentage game that over time will deliver a profit because he makes more correct decisions than bad ones and has the discipline to exit losing positions as well as profitable ones. He will understand that he is not going to get it right every time but will be correct more times than he is wrong. His thought process may be 'I will take this position risking £1 to make £4'...a 4/1 chance (or 25%). This trader knows he only needs 1.01 successful trades in 4 under these rules to be profitable. This is the same psychology used by a bookmaker or casino owner. On a day to day basis they do not know if they will make money but over time they know, providing turnover is healthy, they will yield profits. When you have determined your levels, have confidence in your decisions and do not hesitate when placing the trade. Hesitancy will often leave you chasing the market and entering a trade at a worse level.
It is important to not only determine how much you hope to take out of the market if it is a profitable trade, but how much you would be prepared to lose should it go against you. Most traders can do the first part but when in a losing trade, they let it run and end up wiping out all of their profits! Also put your exit order in immediately and DO NOT move the goalposts! Below is a scenario which occurs if you do not do this.
You decide to back Man Utd against Arsenal at 2.8 with a view to trade out of it when the first goal goes in, green-booking for either a profit or a loss. Your analysis suggests if United go 1-0 up in the first half they would be trading at around 1.7. You do not put in your lay order. Ronaldo scores in the 30th minute. They are down to 1.67 but, having not pre-entered the order, you are mesmerized by the price continuing to shorten. You say to yourself '1.60 and I am out', then '1.50 and I will close my position'. You keep moving the goalposts only for Arsenal to score and you find yourself in a losing trade. There is no worse feeling. Good analysis but poor trading!
3.) Never expect the market to do what you want.....be happy when it does
A junior analyst for a leading global bank strode confidently into his CEO's office and announced to him that, having analysed all his charts, Pork Bellies were cheap and a short term futures trade just below $80 would yield sizeable profits in the near time. 'We should buy them when they hit $78' he said. The CEO asked him to sit down and for two hours they monitored the market. When it hit the level, the trader reiterated the 'gift' of a buying opportunity. 'This is the short term bottom; we need to take a position'. His boss picked up the phone and put in a large SELL order. The price continued to fall. The trader sitting across from him went ashen. 'Your technical charts may help me on my decision making but never tell me what the market will do next'.
You obviously need to have an opinion, based upon your analysis, but never be so arrogant to believe that you will be right and that you can predict the direction of a market. There are too many different market forces and participants to know what will happen next - someone may be forced to sell an open position because he has a margin call; another may be required to hedge a large position on another product.
Many traders believe because price movement on a chart is a replica of one they have seen before that they know where the next move is. They may well be right but because it happened before, it is not certain to happen again unless the market and participants are EXACTLY the same as on its last occurrence. This is highly unlikely!
Every trader has losing trades. It is those who can minimalise their losses and choose the correct time to realise their profits who become good traders. Fear and greed have always moved markets. Have the belief in your decision making and don't be greedy, small profits time and again quickly add up. Keep the discipline, accept you will have losing trades and the moment you feel you are breaking your rules, walk away. There is always another day and another trade.
Example 1 - Cricket
Let's look at the example of the final test between India and Australia in November 2004.
• Needing just 107 in the fourth innings to win the match, Australia traded at 1.05 when the target was set, India are matched at 20. Being only day three, the draw is out of the equation.
• Australia lost a wicket immediately (0-1) and drifted to 1.10.
• Wickets continue to tumble, and at 58-6, India became favourites at a price of 1.86.
• Another wicket, 62-7, and India are now strong favourites trading at 1.22 - their lowest price in the match.
• Mini-revival, Australia reach 77-7 and regain favouritism at 1.89.
• A wicket reverses the betting dramatically, India now 1.30 at 77-8.
• The tail wags, at 90-8, both teams are trading at evens (2.0).
• The ninth wicket fails, India back into 1.50.
• Australia all out for 93, the final price available for India was 1.30.
Imagine the position you could have put yourself in if you believed Australia's record in dead rubber tests and chasing small totals was worth a risk. If this was your believe you would lay Australia at 1.05 which wouldn't exactly kill you. For a potential profit of £100 if Australia did not win the game, you risk a whole £5 - the price of a couple of pints!
Think about it - what is the downside of such a lay? The opening batsman Langer & Hayden defy the trend of the match and get to 50/0, Australia trades at 1.02 and you can't get out of it.
At virtually any point in the innings after the first over, you had a healthy position to trade from.
Would you then back Australia at 1.5 or 2.0 or higher? There are plenty of options available to you and you don't need to jump in all at once. You could bet back piece by piece - first covering the potential loss you have on Australia so you then have a 'bet to nothing', then chip away to even up your result on both sides. You can weight the position to however you want to cheer the result. That's the beauty of Betfair.
Example 2 - Football
If only it was so easy - not every game will go exactly as you plan. Watch a few games and make some notes, rather than investing cash. If you have any statistics to help you out (number of draws on a certain cricket pitch, most popular time for goals to be scored in soccer etc), all the better.
Go into the match with a strategy. Do you think one team will win? How confident are you? Do you wish to ride them all the way, hedge for an even profit all-round, or somewhere in-between? Are you prepared to risk a little bit for a chance of a big payoff?After 35 minutes, lay the draw a
A popular trading system is backing the draw first in football matches that you expect to be rather dull and lifeless, particularly in the first half. The average draw price of a relatively even English Premiership match is 3.4. If the game is still scoreless at half-time, that price will drop to 2.6-2.7. But beware the late goal, stats show that the last 15 minutes of each half are the highest scoring segments of the match, even after you allow for the addition of injury-time.
Scratch it out first on a piece of paper: In the example below red shows liability and green current positive position.
• Back the draw at 3.4, for £50
o Team A =-£50
o Draw =+£120
o Team B = -£50
• After 35 minutes, lay the draw at 2.80 for £30
o Team A = -£20
o Draw = +£66
o Team B = -£20
(nb - effective position is now £20 on the Draw at 4.3, better odds than were ever available)
• At half-time, if the score is still 0-0, lay the draw again, 2.66 for £30
o Team A = +£10
o Draw = +£16.20
o Team B = +£10
This is now a GREEN BOOK, whichever result occurs you win!
• Team A scores after 60 minutes, the prices are now: Team A 1.50, Draw 3.6, Team B 17.0. Lay Team A for £20
o Team A = £0
o Draw = +£36.20
o Team B = +£30
In this position, you don't mind if the home team hangs on, but you'd prefer an equaliser from the visitors. Team A continue to shorten as the clock ticks, but Team B are pushing everyone forward...
75mins - Team A 1.28, Draw 5.0, Team B 30.0
Do you ride this out or lay the favourite again?
80mins, the visitors get desperate and bring on fresh legs. Team A 1.20, Draw 6.0, Team B 50.0
Have a liability of £10 by laying Team A for a backer's stake of £50.
• Team A = -£10
• Draw = +£86.20
• Team B = +£80
85mins, the visitors equalise! Team A 11.0, Draw 1.20, Team B 11.0. Lay the draw for £100.
• Team A = +£90
• Draw = +£66.20
• Team B = +£180
90 minutes - somebody scores, but do you really care with a book like that???
Alternatively, you might wish to lay the odds-on favourite if you don't think they will score in the first half-hour. There are many different strategies, many different variables, the only way to work out what's best for you is test them out.