Trading on Betfair: Thinking in Probabilities rather than Emotions

Thinking in terms of probabilities is likely one of the toughest challenges to overcome in trading, though awareness can greatly ease this difficulty. Trading driven by strong emotions often leads swiftly to financial losses, primarily because trading is inherently counterintuitive. Earlier this week, I spoke with Jon, an experienced trader, about how trading is almost diametrically opposed to conventional employment. He laughed, understanding immediately the point I was making and its impact on traders.

In everyday life, it’s commonly accepted that “the harder you work, the more you’ll get paid” or “the longer you work, the more you’ll get paid.” The global standard of remuneration based on time reinforces this belief. However, trading on Betfair is the exact opposite. There are times when doing less actually ensures a larger balance. Although it might sound repetitive, it’s crucial to focus as much on avoiding losses as on securing wins. Another significant aspect of trading Betfair is that your earnings are not directly related to the hours spent or the effort exerted; the difficulty is as much as you make it. Mastering your emotions and yourself is one way to navigate this, though it’s a lengthy journey.

A simpler approach to managing emotions and effectively “de-sensitizing” yourself involves recognizing the patterns you’re trading. Consistently acknowledging these patterns without fear of any particular outcome—realizing that over a thousand trials you turn a profit—can significantly enhance your performance (hiding your balance in AGT by right-clicking on the Market Navigator bar can aid in this process).

Each trade should be considered a story. You’re at a disadvantage if you’re unaware of how the story might end, whether positively or negatively. Just like setting goals without specific criteria can lead to failure, not understanding your trading narrative can hinder your progress. To aid in emotional desensitization, you need to clarify four key aspects:

1. Why are you entering this trade? For instance, a specific horse is heavily backed in a weak race with low overall turnover. It’s beneficial to assess your confidence before you enter.
2. What do you expect to happen once the trade is open? For example, the price might initially revert a few ticks, but you anticipate it will continue moving in your favor within 30 seconds. Understanding that a brief adverse move is part of the process can mitigate fear.
3. When will you enter or exit the trade, regardless of the outcome? Decisions might be based on shifts in momentum, support for other competitors, or the race approaching its start.
4. How do you plan to manage the trade? You might open a trade in anticipation of a long-term shift (swing trade) but choose to exit if there’s a significant negative change.

Having a clear idea of these elements before each trade can lessen emotional attachment and lead to a more rational understanding of the markets. Focusing on the ‘story’ of each trade rather than the potential outcomes ensures better decision-making, especially when things don’t go as planned.

In my trading, I acknowledge making plenty of mistakes, with about 90% stemming from heightened emotional sensitivity, often exacerbated by external pressures. By fully understanding the narrative of each trade, it becomes easier to stick to a coherent trading strategy.