Ending your pre-race trading career by going in-play (part 1)

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.

5 comments:

  1. Hi,
    Great post. You have described exactly what I do everytime. I know I shouldn't let my losing positions go in play but it's irresistable. Now I have so little bank left I have to decide Ascot or wait for the tennis. Hey Ho better find that edge soon!

    Regards Scruff,

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  2. Hi Scruff,
    Thanks for your comment. I know how hard it is! My reason for posting about this after so long is because I have changed this behaviour and so now maybe I can make some suggestions to help - if I can stop taking these huge risks then anyone can!
    Also, it would be great to hear from other traders who have managed to stop doing it too.
    Cheers, MG.

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  3. Hi,
    I did an experiment yesterday by setting the wife up with £50 on Betdaq. She was backing one and trying to cover by laying another. You can guess what happened. It was good to try though because watching her made me feel that I had learnt a bit after all. Also interesting to see the nasty spreads on Betdaq. I ended up £40 down after losing 100 on a punt I wanted to do so that's technically 60 up I suppose.

    Regards Scruff,

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  4. Two banks down and halfway through my third one. Why? Because I cannot get my finger to red up when I've called a trade badly and then doubled and trebled the liability by averaging down. So frustrating, so I'm already looking forward to your next post about how you have managed to change your behaviour. Is there someone 6' 6" tall in a trenchcoat with a violin case stood behind you when the race is about to jump off? - because I think that's the only thing that's gonna work for me as no matter how much pain these huge losses cause, I seem to go back for more and ride the shit or bust train.

    Gambler to Trader? - Tell me it is possible to get there eventually - Please!

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  5. Hi Ostlerstrading,
    I like your idea of having a heavy standing behind you!!! Sorry to hear things aren't going well.
    I have nearly finished writing my next post, it's taking time as I'm trying to think of all the different aspects I've changed in the past few years, I hope you and others will find it useful. I also hope that it will generate comments which we will all find useful. I'm intrigued with how the poll is going, so far no-one has said they've never blown their bank in this way so maybe we shouldn't be too hard on ourselves - but we do need to stop doing this to succeed. More soon, cheers. MG.

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