Adam Todd, December 2006

Adam is the founder of RacingTraders, a Betfair licensed software vendor. Visit www.racingtraders.com for more information.

RacingTraders is a third-party Licensed Software Vendor of Betfair. RacingTraders produce and support their own products. To make use of any of these software applications you must enter into an agreement with the individual vendors - separate from Betfair. Find off-the-shelf applications, historical data, results and more at the Betfair Solutions Directory at http://solutions.betfair.com.

1. Predicting and trading in different timescales

You must make sure that you match the timescale of your prediction of the price’s direction with the amount of time that you hold your position. For instance, a classic mistake would be if you are trading the favourite’s price three minutes before the race is due to start and you see that the price is being Backed heavily and is going down. You think that this horse has a really good chance of winning the race so you decide to Back also. WRONG!!! If you do that you are basing a short term trading decision on a long term view of the price. The timescale of your prediction of the price, i.e. that the price will go down because the horse will win the race, is different from the intended timescale of your trade, which is to trade out of it with a profit in a minute or less. Unless you’re going to hold the bet until the race has finished then you can’t base trading decisions on where you think the price will be when the race has finished.

2. Not getting out instantly

Short-term traders don’t realize just how short-term you have to be to avoid the losses. To trade without knowing anything about what is going on, you have to assume that any movement against you is going to carry on going against you in the most painful way it can. And this isn’t too drastic of an assumption, as anyone that’s held onto a losing trade only to see it get worse and worse will agree. Without any knowledge to the contrary you have to assume the worst, and the only protection against this is not to be in harm’s way: The less time you’re in a position, the less can go wrong. Take your profits quickly and your scratch trades and losses even quicker. By quickly I mean instantly, profit scratch or loss you should be out, or at least have your counter trade in, within 10 or 20 seconds at the most.

3. Not doing scratch trades

There is a tendency amongst new traders to see the scratch trade as a waste of time. The scratch trade is where you lay and back the horse at the same price. Once someone has done a scratch trade, only to then see the price go two or three ticks the right way they tend to stop doing them. The new trader can’t get it out of his mind that the scratch trade just cost him a profit and stops doing them. However, human nature, some more than others, will always make us dwell on what we just missed out on without appreciating what we’ve got. A scratch trade that gets you out of the market before the price suddenly turns against you is soon forgotten about as the trader quietly congratulates his trading skills and quickly forgets all about it. A missed profit has a different effect on many people than a saved loss of the same size has. The fewer scratch trades you do the more losses you will have, that is a fact, so therefore you need more profits just to get back the extra that you’re losing. It’s far better to not lose and then to not win than it is to lose and then win.

4. Letting losing trades ride as bets

To be a successful trader you must be taking profits and losses of roughly the same size, but having more profits than losses, the scratch trade taking the place of the losses. As soon as you start to let your losses get bigger than your profits you’re creating an uphill battle for yourself because then you have to have lots more profits than losses just to break even. The absolute worst thing you can do is hold on to a bet because you were losing on it and let it ride as the race runs. Doing this is total insanity from a risk reward ratio and is gambling at its worst. If you want to gamble then gamble but at least do it properly. Don’t do a hybrid mix of trading and gambling where you’re doing each one badly. To make small one and two tick profits and then risk your whole bank on the outcome of a horserace because you couldn’t take a small one or two tick loss is stupid. You know that in the long run it’s going to end in tears so why do it? There’s no point in winning nine times and losing once if your loss is 50 times the size of your profit. Anyone with such a complete lack of discipline not only will lose but deserves to lose.

5. Reading form and watching racing

As a short-term scalper the last things you want to do are read form and watch the racing on television. Those that wish to gamble on the outcome of the races should of course do these things but a trader should avoid the formbook and the television. Not only are they distractions from trading but they implant biases in the trader’s mind that detract from his ability to concentrate solely on the numbers and the patterns of movement that they are creating, leading to scenario 1. The scalper shouldn’t read the racing paper or switch on the television and should only log in to Betfair at the most 20 minutes before the first race.

6. Wanting to enjoy the racing

Trading is often described as boring and detracting from the enjoyment of racing. This may be the case but horseracing is of no concern to the scalper so this comment is meaningless. Horseracing has nothing to do with what the scalper is doing. Wanting to enjoy the racing or enjoy your betting is fine but you cannot trade successfully at the same time. You can do one or the other but not both. Trading requires concentration and dedication and if you’re watching horseracing at the same time then you are being unprofessional.

7. Over-thinking their trades

Most traders over-think which way the market is going to go which has two drawbacks: firstly, they don’t do enough trades which cuts down their potential to make money and secondly when they do eventually pull the trigger they have put so much thought and effort into their trade that they fall in love with it. They are unwilling to get out of such a trade with an almost instant scratch trade or an almost instant small loss. It’s as if doing that would be to embarrassing after waiting so long and putting so much time into it. This is why people ride their losses due to their inability to accept so quickly that they were wrong. Instead of entering into a trade with the confidence that you are right, each trade should instead be entered with the assumption that you are wrong with a willingness to react correctly if indeed you are wrong. As much as you may have built up your reasoning for the trade you just did, you must remember that you don’t actually know anything about what is going on and it’s ok to be wrong.

8. Being afraid to purchase specialist trading software

If you want to make money from purely scalping or trading, then it is worth every penny in subscribing to specialist software such as BetTrader PRO. They say necessity is the mother of invention and that’s definitely the case with these products. The Betfair interface has been developed to cater for many different types of customer. If you want to specialise in scalping or scratch trading, then invest in a specialist product. Having live price feeds and one click bet submission at any price, lay or back, gives the trader the absolute flexibility he needs to turn on a sixpence which the Betfair website and most other trading applications don’t allow. It’s the old adage – you need to spend money to make money. Visit http://solutions.betfair.com for further information on trading applications built by Betfair licensed software vendors.

9. Get distracted during races

It’s easy to get distracted by lots of different things when you’re trading but you must ignore everything. Don’t check your emails, don’t be on instant messenger and don’t go on the Betfair forum while the racing is on. To really get in the groove you have to concentrate on every race, moving onto the next race when that one is due to start. That slack period where you have just greened up on a race and then move onto the next race and there is still 10 minutes to go and everything is quite calm shouldn’t be used to do other things. That’s the time where you can sit back for a few minutes while nothing much is happening and relax a bit, but you must still watch the price and be aware of what is happening. Don’t take your eyes from the screen except when nature calls. If you smoke then smoke in front of the computer or not at all, nipping out for a cigarette will cost you thousands of pounds over the course of a year. And don’t completely leave the moment by chatting online to others, don’t even answer the phone or check out other websites. Concentrate dammit! For three and a half hours you are a trader and nothing else, you’ll be surprised how much better you trade when you don’t allow any outside distractions of any kind, letting yourself be absorbed by what you are doing and really seeing the movements and imagining what they might do next.

10. Wanting a profit of predetermined size

Many people decide how much they want to make out of a trade before they enter it and then set their exit price according to that rather than what it looks like they can reasonably get now. Wanting to make two ticks is great but putting your counter-trade in two ticks higher than you just laid at and then sitting back waiting is gambling, not trading. It might go up, but it might go down, if you can’t get out straight away with a profit you should ask for a smaller profit. If you can’t get the smaller profit straight away you should scratch, and if you miss the scratch trade you should take a loss. If instead of all that you remain motionless with your counter-trade still in at the same price waiting for your two tick profit then you are gambling and will have your share of profits but also your share of big losses.