Tuesday, 16 January 2007

My Trading Style

After reading a recent post by The Betfair Trader I decided to purchase the book Market Wizards. I'm always looking for an edge and I find reading about other experiences helps me stay focussed and motivated. I'm only a few pages in but it's already got me thinking about my trading style.

I'd currently describe my style as a cross between a position-taker and a scalper. I'll try to explain...

I research any event I plan to trade but during the event I will normally be in and out of the market within 20 seconds. My goals are very short term and I'm always looking at what will happen in the immediate future. I seem to like this way of trading as I always know where I am, but I'm starting to feel that I'm not maximising my potential.

The reason for this is that my research normally gives me a good feel of what is likely to happen so when I spot an opportunity that I believe to be under or over priced it seems a waste to get out of the trade so quickly.

I'll give you an example - After researching the NFL game between San Diego v New England on Sunday I'd drawn the conclusion that it would be another close affair and even though San Diego deserved favouritism, their opening price of 1.56 was probably a little too short. However, this price was not enough for me to trade so I watched intently waiting for the price to shorten further. San Diego ended up scoring a touchdown early in the second quarter and their price fell rapidly to trade around 1.29 (the score was only 7-3 and there was still over half of the game to play!). Now this I would class as an over-reaction so I laid away and placed a reverse order a few ticks above.

Sure enough, I got matched pretty quickly and made a small profit but this is where I think I'm going wrong.

As I'd identified the match would potentially be very close why didn't I hold onto my position until it reached what I considered a realistic price for that stage of the game? If you'd ask me at that moment what a realistic price was then I'd have probably said around 1.52, so why was I in such a rush to make a small profit when everything was telling me I was in a strong position?

My conclusion is that I have a subconcious need to be green. I fear losing so much that I want to lock in a profit as soon as possible. By doing this I'm aware that my winning trades are falling short.

Can this be overcome or should I continue to trade the way I am? I need guidance - please leave a comment and help me out.

As a side note - San Diego lost 21-24!


Anonymous said...
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Anonymous said...

Hi Mark

As a professional trader myself for the past 15 years (as a hedge fund manager and part-time betfair trader) I can see that you are getting to grips with the really important issues of trading. The trick to good trading is to focus on the process rather than the outcome. If you do this the outcomes (i.e. P&L) will look after itself.

This sounds simple, but its not. Read some of the betting blogs and you will see time and time again that traders are focused on the outcome rather than the process. For example, most traders say 'I have a daily target and when I make that I stop trading.' This is dangerous and most likely will lead to poor long term performance. The reason is that you are effectively capping your upside whilst having an unlimited downside. This will almost certainly lead to small profits and large losses and one day you will get discouraged and stop! (You hear this all the time on the blogs too!)

Better to focus on the process and ensuring that you have limited your losses, do this and the profits will look after themselves without you having to take them. Or better still never take profits.

It's human nature to want to take profits and run losses (read some behavioural finance books, 'The Winners Curse' for example), but it will lead to poor trading. It's why humans are so poor at trading, and why 95% of bettors lose money.

I would wish you luck, but there's no such thing!


Mark Iverson said...

Cheers Edge - that's a fantastic reply to my post!

I'll take all your advice on board and I hope with your experience you'll be able to guide me in the right direction if I start yo go off track.

Thanks a lot and keep in touch.


Anonymous said...

Hi Mark
I agree with the previous comments but the other thing to bear in mind that losing is a much stronger emotion than winning. For example, if you get a new job that is exciting but being made redundant is devastating. I am not sure how you overcome this emotion but it may be why you are taking your profits early.

Mark Iverson said...

Thanks Mick! - maybe if I held onto trades longer and they turned into losers would this 'strong' emotion tun into my downfall?

Anonymous said...

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Have you seen / used it and what are your opinions.

Thanks and kind regards,