Market moves - right or wrong?

[Zenyatta]

Thanks JollyG. What you are saying is that some people's losses are caused by their psyche. I'm sure that you are right.

As someone who never mastered trend trading, I don't believe that 'psyche' is the main issue. I think the main issue is correctly identifying when trending is happening early enough to profit.

IF you have correctly identified a trend in the first place, THEN there is no flaw in your logic. But what if you are mistaken that trending is actually what is happening?

Just because a price has moved a number of ticks in a certain direction, doesn't mean the price is trending. One of three things could be happening:

(1) Trending - the price is indeed going one-way. Then you should obviously get on and follow it

(2) Swinging - the price is not going one-way, but is instead going to swing back and forth like a pendulum. In this case, if you blindly jump on (follow the price around), you will lose, since the price will be reversing on you as it swings back and forth.

(3) Random noise - no real price movement, the price is not trending or swinging, it's just a random fluctuation - for example someone just put a big order in, causing a temporary price jump, but there is no real support. Again in this case, if you jump on, you will lose, since the price will reverse on you ('revert to the mean')

So even before your logic can be applied, you need to correctly identify when trending is happening in the first place. The longer you wait and watch the price, the more sure you can be, however once it's obvious, it's often already too late to profit (the move will be over before you got your money on)....

[Euler]

As somebody who can give a person precise entry and exit points and watch in amazement as they completely fail to take them, I'd say psyche has a lot to do with with the inability to trade.

Typically, people get shaken out by noise. They struggle to overcome the emotion of trading and the noise on their position and lose sight of the broader trend and price pressure.

They take too long to realise what is happening. Act too late then when the position reverses they repeat the error compounding their problem.

All you need is to be a few seconds ahead of the market and to generally make roughly right decisions to turn a profit. At worst you should get a strike rate of 50% if you are making a decision on direction, but it's amazing to see how often people get a strike rate way below that. So that can't be related to a position that has been taken.

Before going full time on Betfair I thought I would be full time on financial markets. But I was hopeless at trading short term on financials. But betfair has taught me how to overcome all those bad habits.

I was a total sceptic that anybody could trade short term but I now understand what is required and have spent years making tiny improvements to that to the point when it's second nature to me now. So I'm not surprised to see people being sceptical.

But one of the keys is almost to ignore the money you are using, that seems to be the key. But also you need the ability to cut out very shot term movements from your psyche. When the price pops out 4/5 ticks against you, you need to keep an eye on it, but not necessarily make it change your position. If everything else is still intact you just sit there and wait. Which is something a lot of people struggle with.

[Zenyatta]

At worst you should get a strike rate of 50% if you are making a decision on direction, but it's amazing to see how often people get a strike rate way below that. So that can't be related to a position that has been taken.

Well, nearly all my big losses have come about when I tried to chase the price around , that's why I think trying to follow trends (momentum trading) is so very dangerous to people if they don't know what they're doing. It's only when I start trying to chase prices around that my strike rate can fall below 50% (result worse than chance).

When the price pops out 4/5 ticks against you, you need to keep an eye on it, but not necessarily make it change your position. If everything else is still intact you just sit there and wait. Which is something a lot of people struggle with.

Sure, but I think the problem is that there is (usually) no easy way for people to tell if a price move is the start of longer-term trend, or if its just noise or the start of a pendulum-like swing condition. In the latter two cases, (noise or swing) plenty of people will mistakenly think a long-term one-way trend has started, so they will try to jump on (chase the prices) and lose.

[Euler]

I tried something new recently. I was watching somebody trade and I kept on pushing him while he was trading. Eventually he got fed up and told me to stop and asked why I was doing it.

I told him that was what they market was doing to him every few seconds and learning to ignore it was a key part of trading. I could see the market was pushing him around so I thought I would transfer that into something more obvious.

Psychology has showed us the brain interprets loss or fear of loss much more than gain. Caveman / saber tooth tiger sort of stuff. It seems the following happens in peoples mind when trading.

You take a position.

It moves to a loss so you fell that can't be right because you took ages working out when to get it. How come the market moves against you every time you choose a position. You exit for a loss or just hang on hoping for it to turn.

A position moves into profit but pulls back a bit, you take a profit but lower than a few seconds ago. A few seconds later it recommences the trend.

Nothing really happens for ages but then the price dips down so you exit for a loss.

Probably only one of those three should end in a loss, but people will often make two of them exit in a loss and cut the profit on the winning trade resulting in an overall loss.

[Euler]

I think the thing you all need to be aware of was that I struggled with the same issues when I first started trading but was able to overcome them.

I'm so much more relaxed when trading, don't particularly care about losses or noise and I'm able to see through it. I know big profits are littered all over the place and I will pick some up even at random so I'm just focused on not doing anything stupid.

[Iron]

I'm so much more relaxed when trading, don't particularly care about losses or noise

I suspect a common feeling of traders is hope. They hope the market will conform to their expectations, and get excited when it does and upset when it doesn't, thinking 'here we go again', rather than just treating each trade like a role of the dice with an unknowable outcome.

I'm reminded of this quote by a market wizard:

'When I get together with other traders and they start exchanging war stories about different trades, I have nothing to say. To me, all our trades are the same.'
Larry Hite

[Zenyatta]

I told him that was what they market was doing to him every few seconds and learning to ignore it was a key part of trading. I could see the market was pushing him around so I thought I would transfer that into something more obvious.

There's a simple way to avoid being pushed around by the market and that's to simply be a punter rather than a trader The punter cannot possibly lose more than the commission.

However, insofar as one is a trader rather than a punter, some degree of being 'pushed around' is inevitable, since one is basing their decisions on what the price is doing. So in the case of trading, it is possible to do worse than chance, as many losing traders can sadly confirm.

So Tonto has read all of the debate, and should give it a go. Will be interesting to see how Tonto does.

[Iron]

There's a simple way to avoid being pushed around by the market and that's to simply be a punter rather than a trader The punter cannot possibly lose more than the commission.

With greatest respect, that's nonsense!

Let's say I have a betting recipe, based on either market activity or form, trainer info, etc, and it gives me a 10% ROI. If you back when I lay, you'll lose more than commission long-term.

Also, when you're betting, you're effectively saying, 'Despite the market being demonstrably extremely efficient, in this instance, despite my limited knowledge, I know I'm right and it's wrong'. Unless you are a genuine expert in your sport, that's a bold assumption to make...

Jeff

[Euler]

Your maximum loss in the long term when trading is the amount of commission you pay to Betfair . Which will be much less than when punting.

Both punting and trading are net zero less commission in the very long term if you add no skill to either of them. But trading is only slightly negative in the scheme of things. When I saw how small that gap was I knew I'd found what I was looking for. I'm still surprised at how little traction trading has gained in the 14 years I've been doing it.

[Iron]

Your maximum loss in the long term when trading is the amount of commission you pay to Betfair . Which will be much less than when punting.

I suspect the mistake a lot of people make is going too high with their staking - they want to get rich quick, as the ego wants everything and it wants it now.

When they inevitably suffer a loss or two that they can't afford, they will get frustrated and decide that trading is an expensive hobby. If they'd gone in with an amount that wouldn't have resulted in pain in the event of a losing trade or two, they might have gotten bored, but they'd have spared themselves a lot of grief.

Jeff

[Naffman]

I'm still surprised at how little traction trading has gained in the 14 years I've been doing it.

I'm surprised but I think if you mention "horse racing", people will automatically stop listening to what you have to say. And the fact that it hasn't gained as much traction as anticipated could be a benefit, as we don't want too many people do we

There's a simple way to avoid being pushed around by the market and that's to simply be a punter rather than a trader The punter cannot possibly lose more than the commission.

You claim you don't require a good head space, except that is very reason why you aren't going to make it work. You seem to simply turn into gambler if you feel the market is pushing around, instead of learning and applying it to your next trade.

[marko236]

3 top tips i'v had from forum.

1. The markets are very efficient close to start of event.

2. You only have to do slightly better than break even.

3. Learn to be a good loser.

[Iron]

You may find crossing that line slightly more difficult than falling off a log.

I'm not saying it's impossible - far from it.

However, it's not the case that all you need to do to profit in these ultra-competitive markets is to avoid making stupid mistakes, as some people say.

If it were that easy, everyone would be doing it.

Jeff

2. You only have to do slightly better than break even.

[Iron]

I agree with these, however, although I would say that the markets are very efficient full stop (as can be verified by downloading thousands of bets and results from data.betfair.com and seeing what would have happened had you bet every selection at all the matched odds).

Jeff

3 top tips i'v had from forum.

1. The markets are very efficient close to start of event.

3. Learn to be a good loser.

[marko236]

You may find crossing that line slightly more difficult than falling off a log.

I'm not saying it's impossible - far from it.

However, it's not the case that all you need to do to profit in these ultra-competitive markets is to avoid making stupid mistakes, as some people say.

If it were that easy, everyone would be doing it.

Jeff

2. You only have to do slightly better than break even.

Try dutching the horse racing so you have a 50% chance of winning putting your bets in just before the start, you'l be surprised how close it is.