No, I haven't blown my bank by accidentally/on-purpose going in-play (this time!), but this is definitely a major problem for some traders. How many I'm not sure, so I've started a poll, it's on the right-hand side of my blog just under my profile. Please vote! My guess is that this blights the traders who come from gambling backgrounds - they have experienced the highly addictive lure of getting out of a sea of losses with one whopping great big winner (or in the case of trading, hoping to duck the pre-race loss from trading). It is way more exciting than a whole raft of things I can think of, probably as addictive as crack-cocaine I would imagine, but I personally wouldn't go as far as Mick Fitzgerald (autobiography, "Better than Sex"), ok he was talking about riding winners not backing them......!
Disclaimer: I don't recommend the following course of action for anyone who wishes to keep their bank-balance / sanity etc......
My most memorable get-out-of-jail-free was one Wednesday three years ago, 14th June 2006, when I had already wiped-out my bank twice earlier in the day (-£5,500). Having hit my credit-card for a third bank of £1,500 (oh yes, there was NO way I was going to quit!), I arrived at the Beverley 4:40. I opened a back-trade on the favourite just before the off, got matched for my whole bank, then before I had chance to blink the race was off. Now, I certainly did not mean to go in-play, but as I was chasing my losses and I had seen good scalping opportunities, I wasn't going to sit and do nothing even though I knew it was close to the off. I was gambling that I wouldn't get caught in-play and that I'd make a few quid on the scalping opportunity I saw (basically taking advantage of the volatility that occurs as more prudent traders close their positions!).
The race was a 5f fillies' handicap with 19 runners, the (joint) favourite that I'd backed was 5-1 SP. Well, by now you know it won (+£7,211 after commission) but the way it won is hilarious considering what I had staked on it (you can see the replay on the Racing Post website for 20p if you're interested, I've just watched it again for a chuckle!). The joint-fav I'd backed, Muara, broke poorly from stall 19 and got crossed by the runner from an adjacent stall, so its odds shot-out. If this hadn't happened, I'd have definitely redded-up for a small loss, but the odds were so ridiculous that I just resigned myself to losing another bank. The jockey, a 5-pound claimer, was the first to start pushing his mount along - after only 2 furlongs! Not surprisingly, the odds drifted further. In the closing stages there were 5 horses in contention and a fast finisher coming down the outside. Somehow (willpower from me hoping?!), Muara put a spurt on and won by a neck coming out of the pack.
I was too busy jumping up and down like a lunatic to remember to take a screenshot of the odds, but I would imagine that there was very little money matched at low odds on this winner as it just looked so unlikely all the way. If it had, I'd have redded-up. Of course the other outrageous piece of good fortune was that I happened to trade on the winning one of the two joint-favourites. Totally and utterly ridiculous. Incredibly lucky and of course I wasn't always so lucky - before this day I had lost my balance on 2 other occasions. The first, and therefore most significant to me, was after having opened a trade close to the off only for my software to freeze (and the bet went on to lose). I now have a couple of back-ups and don't use the same software. The second occasion was pure gambling. I think the "unfair" loss of my bank on the previous occasion affected my trading negatively for a long time afterwards as I tried to regain the money. After losing my bank for a second time I was in real trouble because it was going to take a long time to recover.
One aspect of my trading that I've improved significantly is to make a much higher daily % return. Back in 2006 I was only making about 10% on a good day. That meant that when I lost my balance I needed to work 10 days to recover it. Coupled with a poor state of mind, I found this very hard to accept. Nowadays I use a much smaller bank - only a few hundred - but I make about 30%-40% on a good day and I believe I can improve that more and I aim to average over 50%. On Wednesday I made 12.5% on one race (fully greened-up) - a new record for me. It makes losses on individual races much much easier to bear when you have a realistic chance of recovering them. It negates the reason for gambling.
My reason for explaining this in such detail is because there are several reasons why (losing) traders go in-play with their whole bank on the line and in order to try and arrive at a solution, I've really analysed my reasons. It can be totally accidental, or gambling with how much time is left, or even intentional once a substantial pre-race loss has accumulated from trading. The lines are perhaps more blurred than that too - if you go in-play "accidentally" were you sub-consiously wanting to gamble your way out of a hole? I think this has been the case for me.
There are some (winning) traders who don't seem to be affected with the trait of going in-play with huge liabilities, it would be interesting to really find out why. My guess is that it's because they do not have a background of gambling. If you go in-play when you were in profit on your trades pre-race, is that the same as going in-play when you had accumulated a loss that was so big it threatened a chunk of your day's profit?
I'm happy to say that I have now put this behaviour behind me and that is why I think I have some partial solutions. There isn't a magic answer, but a whole set of inter-related factors, at least for me. I still go in-play occasionally (more on that later), but never after having backed a horse for my whole balance. After 14th June 2006 I knew I'd had my luck.
The funny thing is that I've chased losses many times in the past and had some big wins (when I was a pure gambler, before trading), but on this occasion I got out of the hole by accident. Having had these experiences with gambling, when I was a novice trader I found it hard to keep a level-head with my trading when some trades turned into large losses. This was when I got tempted into trying to avoid the losses by going in-play - a fatal flaw for successful trading and a guaranteed route to the poor-house.
In my next post I'm going to try and explain more clearly how I've changed my trading to stop this destructive behaviour. I believe that this is the second most important aspect of my trading that I had to improve in order to become profitable in the long-term. The most important was to find an edge. After that the rest became easier.