Money Management

[Boxy123]

Hi Chaps,

Hoping for some feedback/guidance and general discussion on money management.

I have recently found some strategies in football that are working most of the time (at long last). However, i made the mistake of using most of my bank on each trade - and yes, the obvious thing happened (thankfully it was not a mahoooosive amount). However, i would like to know what the general rule is in terms of the following:

what % of my bank should i use per trade?

do other traders draw out profit based on what has been earned above and beyond your bank?

what do you do if you have a bad week/day? Do you replace your losses in your "bank"?

Your feedback is much appreciated......

[JollyGreen]

I think this will vary from person to person. I know that some people will only risk 5% of their bank and others will risk 10%. I also know some who risk more but it all depends on the type of trade you are performing.

If you use your whole bank and things go pear shaped you have no way to lower your potential loss.

I never enter a trade without knowing my potential risk and what I have as a back up plan to exit with the minimum loss.

[freddy]

i used to have around 10% of my total betting bank in my bf account to begin with and use it all if needed,

it's much less now though, as you soon hit the ceiling of money that is required , probably about 2-3% now.

[Boxy123]

Thanks for the feedback guys - it is much appreciated. If anyone else feels like contributing their thougths, please feel free....

[Euler]

Your perfect stake will always be one that minimuse the risk of busting your bank. To work that out you need to know the variability of returns and your strike rate. At that point you can pitch your risk at a percentage where it would take an astonishing set of circumstances to go bust.

If trading your bank has to be set at % of exposure. You will only lose +/- small %'s but your risk is actually all about if you get caught on a position. PC crash, internet crash, betfair crash.

What stake you use is a very personal thing.

[Boxy123]

thanks Peter,

Strike rate is very good - just need to make sure i am coverered for when things do go against me....

Thanks again guys, much appreciated...

[Iron]

I've produced a spreadsheet (attached) which shows you how much to stake when you are opening with a back, if you have a pre-determined stoploss odds figure and an amount you are prepared to lose on the trade.

I can't promise that the maths in my spreadsheet is 100% sound, but I think it is.

Jeff

[Zenyatta]

Jeff, forget about the stop-loss, it's useless on all but a few markets. Extensive testing over 2 years shows that on most markets I lose money faster than chance using stop-loss.

[Iron]

Jeff, forget about the stop-loss, it's useless on all but a few markets.

What markets is it useful on?

Extensive testing over 2 years shows that on most markets I lose money faster than chance using stop-loss.

Perhaps that was due to the way you used the stoploss, rather than the stoploss itself.

Regardless of whether you offer to the market to close or take the available price, would you not agree that there comes a point in a losing trade where you should say 'This trade has gone far enough against me - it's time to get out'?

You've previously stated that the chart rarely moves more than 20 ticks against you (and that therefore letting your losses run can't be that dangerous). The charts in this thread paint a different picture, however: viewtopic.php?f=5&t=6690

Jeff

[Zenyatta]

What markets is it useful on?

A few simple markets where there is likely to be clear price trends.

Regardless of whether you offer to the market to close or take the available price, would you not agree that there comes a point in a losing trade where you should say 'This trade has gone far enough against me - it's time to get out'?

Unless it's the particular type of market I mentioned above, no, I wouldn't agree.

As an example for yesterday, I had placed a $400 back bet on 'Trail Blaze' (the 3.25 at Ayr) around 5 minutes before the off. Immediately the market started moving against me and continued moving against me by a huge number of ticks (over 12 ticks in fact, the price of 'Trail Blaze' went from around 3.60 to over 4.00 in the space of a minute).

If I'd "stopped loss" (and my old self would have) I'd have lost a fortune. Instead, here's what I did do: I simply kept putting more and more and more cash on to back as the price kept moving out and out. I think I ended up with an exposure of over $1000 on it before finally getting the big price reversal. The price then proceeded to crash all the way down again, ended with an SP of 3.45 and reaping me huge profits.

That's confidence. Not chasing prices (and stop-loss is really just chasing prices), but backing yourself and confidently betting against the market. That's the secret to real profit.

[LeTiss]

Jeff, I'm going to be honest and not at all confrontational. You seem to have it in your head that stop losses are absolutely crucial, they are not, in fact they drain your bank quicker than marriage.

Stop losses are for very nervous traders, and nervous traders will never make decent money, you need confidence in this game.

Also, I found in my early days I was obsessed with churning out Peter Webb like figures. Once I realised that was unrealistic, I went back to basics and just concentrated on studying and learning markets. The hefty green figures then followed. Stop losses do not help you become a better trader. Good traders need to manage losses themselves, I wouldn't recommend them to anyone

[Iron]

Yesterday, I had placed a $400 back bet on 'Trail Blaze' (the 3.25 at Ayr) around 5 minutes before the off. Immediately the market started moving against me and continued moving against me by a huge number of ticks (over 12 ticks in fact, the price of 'Trail Blaze' went from around 3.60 to over 4.00 in the space of a minute).

If I'd "stopped loss" (and my old self would have) I'd have lost a fortune.

Question for the pros - Would you recommend letting a position go 12 ticks against you without closing your trade? Except in an extremely volatile market, it strikes me as suicidal...

Instead, here's what I did do: I simply kept putting more and more and more cash on to back as the price kept moving out and out. I think I ended up with an exposure of over $1000 on it before finally getting the big price reversal.

That sounds like a Martingale strategy...

The price then proceeded to crash all the way down again, ended with an SP of 3.45 and reaping me huge profits.

But it might not have done. Often there is no reversal, or only a very small one.

That's confidence.

It's over-confidence IMHO.

Not chasing prices (and stop-loss is really just chasing prices), but backing yourself and confidently betting against the market. That's the secret to real profit.

I've nothing against the contrarian approach, but simply betting more and more money on an eventual reversal which may or may not happen is a road to the poor house...

Jeff

[PeterLe]

I'm with Zenyatta and LeTiss here, we've proved it Time and Time again
Jeff - Have a go at this today. Lets stick with the fav for illustration purposes.
5 mins out of each race make a note of the current back price and a note of what you stop loss would be. See how many times your stop loss would be hit (guaranteed loss), then see how many times it comes back into profit.
If you use stop losses, you will be on a red, if you dont then you will be be be not far off break even. The secret (if there is such a thing) is the entry in my opinion. If you get a good entry there will be lots of opportunity to exit.
Regards
Peter

[Iron]

Jeff, I'm going to be honest and not at all confrontational. You seem to have it in your head that stop losses are absolutely crucial, they are not, in fact they drain your bank quicker than marriage.

Thank you for your advice.

I don't think that automated stoplosses are necessary. But I do think that it's important to get out of bad trades (whether by scratching or by taking money from the queue). Would you agree with that?

Also, I found in my early days I was obsessed with churning out Peter Webb like figures.

I suspect that's a common mistake, and one I've made myself in the past.

Once I realised that was unrealistic

Who says it's unrealistic? As I believe Peter once wrote, the word 'impossible' should be used with great caution...

I went back to basics and just concentrated on studying and learning markets.

I think that's excellent advice for someone wanting to become profitable. Rather than worrying about what other traders do or don't do, they should focus on what they reason is likely to lead to profits, and then test out their theories.

BTW, I wouldn't have thought you were being confrontational. I get the impression that you are a very direct person, and I appreciate that. I like people who tell it like it is, and I have a low tolerance for bs!

Jeff

[Iron]

I'm with Zenyatta and LeTiss here, we've proved it Time and Time again

Hi Peter

Thank you for your advice.

You don't agree with Zenyatta's belief that you should let the markets go 12 ticks against you without exiting, do you? IMHO, that's a dangerous belief, and I hope that we don't get newbies taking a leaf out of his book.

Surely one of the basics of trading - whether financial or Betfair - is that you need to be able to cut your losses.

If you use stop losses, you will be on a red, if you dont then you will be be be not far off break even.

To clarify, when I write of stoplosses, I'm not referring purely to automated stoplosses, nor do I mean that you necessarily need to take the available price to close. All I'm saying is that sometimes you need to exit your trade when the market moves against your position (whether by scratching the trade or by forcing the close).

I appreciate, btw, that it's also possible to have a stop that's too tight, and you need to adjust your exit strategy to the current market volatility.

Jeff