Having been in the market for so long. I’ve come across many things that just don’t stack up with my experiences in the market. This post explains these commonly held views and what I actually discovered about them in my twenty-year trading career.
I hope they help you understand the markets a bit better and the context in which these quotes are often made, versus the reality.
You can’t make money from betting
Let start with a biggy. For years I was told and I told others, only the bookmaker wins.
But with the dawn of betting exchanges, that completely changed. You were suddenly on a level playing field and only your ingenuity separated you from potential profit. No restrictions on your stake, no being banned, no palps. It was amazing!
It still surprises me that people are still complaining about traditional bookmakers and sportsbooks when so much has changed and so much time has passed. If you don’t like how they act, there is an alternative. You now have a significant number of people that have turned betting exchanges to their advantage.
Why more people don’t, appears to be a bit of apathy, inertia and an industry that makes more from offering poor value to unsuspecting punters.
95% of traders lose
What does this actually mean? 100% of people die, so does that mean nobody lives?
Through some research, I’ve worked out and had confirmed how many people are successful and the sort of scope and scale of that number. More than 5% of punters win on the exchange and Betfair have come out several times and stated publically what the number is. If you use API software, that gives you a leg up and if you trade it’s higher than average and so on. That makes sense.
But of course, any number depends on how you qualify that number. Is it this week, this year, over five years, ten? Without that qualifying term, you can’t possibly reliability use such a statistic. It’s a classic case of statistics being used to make an emotional point. But it’s lazy and lacks rigour.
In financial markets, firms are now required to publically state and publish this number. So you can get a true figure from those entries and it’s quite revealing. Again it’s not 95% unless you rework the terms to hit that number. But all that said, it’s sensible to set low expectations. Not everybody is going to make it work and it’s a really competitive market. That’s the reality.
Ultimately it’s a speculative venture and should be treated as such.
The market is fixed against you
When I first started trading in financial markets it felt like this, I can understand why. When you are starting out, everything does the opposite of what it should.
The quicker you overcome this though, the quicker you will see what is actually going on and come to terms with it. When I did this, it was like I suddenly looking at things through a completely different lens. It was really enlightening.
Even if you had all the data in the world available to you, you still couldn’t really interpret what is going on. That is because you could only really know the intention of any person by reading their mind. The market does whatever it wants and coming to terms with that quickly will get you further up the pecking order.
So you should view the market as an amalgam of judgements and reactions to those judgements. In short, to be successful you need to think about and anticipate what people are thinking about.
You need a big bank
If you feel you need a big bank to trade or that’s its an advantage. Go out and remortgage your house and give it a try.
Using a smaller bank and individual stakes is a much safer way of participating in the market. You can get trades in and out easily and quickly. It’s also less risky.
If you use stakes that are too large, it’s difficult to open and close a position without taking out some of the money in the market. If you do that from a betting perspective, you get poorer value. From a trading perspective, you end up pushing the position against you on either side. Reducing your chances of a successful trade.
Small is good!
Winning is being profitable
Everyone loves a winner, but in betting and trading, that’s not important. Because it is easy to find a winning trade, really easy. Finding a profitable edge, a bit harder.
To be profitable in the long term you need to have a profitable edge, not win.
If you are trading an event before it has started, the price won’t move much, more on horse racing of course. So you have to trade inside that volatility to get a profitable trade. When volatility is very high, such as in play, it’s relatively easy to get a trade in and out of the market within that frame of volatility. Basically, you will get a win very often.
The problem is though, that this is because you are inside the frame of volatility. Step outside that and your strike rate will plummet. So in the long term, you will only profit if you can exceed this volatility.
Each market you trade will have a base rate, a rate at which a winning trade with occur ‘naturally’. Your mission, should you choose to accept it, is to trade above that. That is how you get profitable.
Historical data mining is the key
I’ve often said that data mining is statistical deja vu.
It’s not that I don’t believe in data mining or collection, as I do a huge amount of it. I spend almost as much time looking at data as I do trading. It’s just that data only tells you what happened, not what is going to happen.
You could easily find a nugget of information in there that looks profitable, only to put it into the market and find it isn’t. But also you may infer something from your data simply because you are looking for it. I use data to model and frame opportunities, not to spot specific opportunities.
My advice to you is to use data as a guide but to use real money in the market to test strategies from day one. You will probably discover more from that than any data can provide.
Trading psychology is just a load of mumbo jumbo
First off, lots of people talk about the psychology of trading because it’s part of the mix. Few people truly understand its relevance and importance.
I’ve met many trading psychology experts who are terrible traders. I want to learn from people who were terrible traders and learned how to turn that around. That sounds much more interesting!
I spent my first ten years or so using quantitative measures to figure out what I wanted to do. But the penny truly dropped for me when trying to teach others to trade and through explaining my trading to others. On the latter, people would often question something I said, this was despite trying to offer the best advice I could.
On the former, I faced this strange situation once where I taught two people something that definitely would work. But somehow they ended up with two completely different results. It was bizarre, I had to find out why. The answer was in their psychological biases and approach to risk-taking.
Once I worked that out, I furiously read up on every piece of literature to understand what I could see. Having done my research I started seeing it everywhere. Within me, with other people, within the market and on the field of play.
It completely changed the way I look at everything.
What’s the big secret?
One common theme I’ve seen over many years is the idea that ‘If only I knew this I’d be profitable’.
People seem to think there is some magic secret that if only they had access to, they would tap into an unlimited pot of wealth. The reality is somewhat different.
Like most things, trading is a skill. Most people know how to play Tennis and what you should do, but picking up a Tennis racquet doesn’t mean you will win Wimbledon.
Trading is fairly similar. Most methods and styles are reasonably well known, but the tools you use, how you play, practice and your skill can elevate your above others. But also bear in mind that you can get enjoyment fun and success without having to be a grand slam champion.
Set realistic targets, work hard and slowly but surely you can elevate yourself above the level of a club player. From there, it’s up to you how committed you are and how far you want to go!