How Do You Know When To Let Your Winners Ride And When To Cut Your Losses?

At last, at last I am a champion!

At last, at last I am a champion!

If this is the first ever Betfair tipping website you have come across, then great, I'm glad you found me first and I hope that our relationship will continue for many years to come.

If the more likely scenario is true and you've been on dozens of other sites before this one, then I still want a long lasting relationship with you, but you’re much more likely to have heard the term,

‘To be a successful trader you need to let your winners ride and cut your losses’.

The above statement is 100% true, you will make more money in the long run, if you let your winners ride and you cut your losses, or to put it another way, win big, lose small.

But just how do you do that? How do you know that you should let this particular trade ride or cut a loss on that particular trade without the benefit of hindsight?

Let me give you a real world scenario, it is the World Cup 2014 and the hosts Brazil are just about to play Germany in the semi final, after reviewing the information I had to hand i.e. Brazil had been helped out big time by the refs and ze Germans were looking wonderfully efficient. 

I decided that the only prudent strategy was to lay Brazil to qualify. I decided to go with this as it was a positive lay and allowed me to have a smaller liability than I stood to win, I did this because I felt that passion might just get Brazil to score first, which would ruin my early trading opportunities, which is ultimately what I'm all about as a sports trader.

So the game starts frantically and Brazil have a few chances, their striker Hulk who has looked lumbering all competition comes close to scoring and Brazil hit the post.

I can see from watching that Germany haven’t settled in yet and I have faith that they will, but it’s looking like the will of the Brazilian crowd may just force the ball into the German net.

Sure enough after ten minutes Germany get the ball down and start playing, one minute later the mercurial Thomas Muller scores the opening goal for Germany and it’s 1-0.

I am not worthy!

I am not worthy!

Right, let’s pause for a second and analyse what’s going on,

I'm in a trading situation as Brazil’s odds to qualify move from 1.89 to around 2.7, Brazil to be fair to them in the following twelve minutes Brazil almost equalise and look like they are fighting back.

About five minutes after Germany’s opening goal I back out at around 3.2 making myself a small profit and I have a nice all green book and I settle down to enjoy the game, then as the game enters the 24th minute the German legend Miroslav Klose scores Germany’s second and six minutes after that it’s 5-0 and the rest, as they say, is history.

Now it’s easy to just say, I should have let my winner ride, if I had waited just twelve minutes I could have backed out at around 6.5 if I’d waited twenty minutes I could have traded off my original lay for just £2 making a nice fat profit.

So was that a let it ride scenario? Could I have done better? The answers are yes and yes. It was a let it ride scenario because even though Brazil were trying to fight back, they had lost their influential centre back Thiago Silva and their talismanic centre-forward; Neymar, who had scored almost all their goals thus far.

When the first goal went in, this should have been at the forefront of my mind, as Brazil were sure to leave holes at the back trying to claw back the deficit.

Also Miroslav Klose the legendary German forward, who scores in practically every World Cup game he play’s in, was on the pitch, plus add to the fact that even if Brazil did score after Germany, their odds still probably wouldn't have dropped to their original 1.89. 

Eat my goal!

Eat my goal!

In short, there were many indicators that suggested that my original lay was right and I should have let it ride, but I panicked, I envisioned an errant referee giving a penalty and/or sending off a German player; I panicked.

How could I have avoided this? Well, by keeping in mind what I just explained to you above; at the beginning of the game I believed with fair refereeing Germany would win 2 or 3-1 maybe even to nil, I should have opened up Evernote and written down in my trading notebook.

Before the game I believed that without Thiago Silva Brazil would have big problems keeping Germany at bay, I should have written that down.

Before the game I believed that even though Neymar is one of the most over rated, over hyped players in history, he still had scored the majority of Brazil’s goals and he definitely was not playing; which would greatly harm their chances of scoring, let alone winning; I should have written that down and then Vocalised My Thoughts.

I eat when I'm upset

I eat when I'm upset

So those facts were indicators that Brazil weren’t going to win the game, if I had written those things down and had them open on my computer next to my Betfair window, then I could have asked myself the question; Are these things still true? And my answer would have been a resounding, yes!

Equally if Brazil had scored after a series of dodgy decisions by the referee, then of course I could look at my original statements and say; “well the game isn’t being reffed fairly and anything could happen, it’s time to cut my losses and make a small loss now before Brazil are given a penalty and/or Germany get a man sent off.”

What I have described above is all well and good for an event you’re watching in a stable market such as laying a team to qualify in what could be a 120 minute match, but what about when you’re doing those inevitable blind trades; what about those? How do you know when to trade out of a blind trade?

Blind Trading

Blind trades are when you are trading on an event you’re not watching, hence you can take no visual clues about how the event is going and so it can be hard to know if you’re onto a winner that should ride or a loser that should be cut.

In blind trade situations you have no choice but to use live statistical data to try and work out whether your trade is a winner or a runner and the only way you can do that is by knowing your sport and more importantly knowing the market.

The reason I say know your sport and your market is because the two don’t necessarily go hand in hand, let me explain.

You might for instance be betting on one of my favourite markets the under 2.5 goals market in a game of football or as my American cousins call it soccer.

In this instance you have to know what stats to take notice of, so someone might blind trade under 2.5 goals for the first time and get feedback from the monitoring site they’re using, such as livescores.com that there have been a particular number of shots on goal by the home team or the away team has had a high percentage of possession.

Now the person trading that match because of their prior knowledge of football, may well believe that these are important factors in whether the game will end up with 3 goals or more.

So upon seeing that the home team has had 70% possession and ten shots on goal with five of those being on target in the first twenty five minutes of the game may cause the novice blind trader to panic and trade out if he didn't know that the only stat to take notice of in that situation is the goals to minutes ratio; has a goal been scored in the first eighteen minutes? If yes trade out, if no, stick with it.

Or maybe you’re trading tennis and you've laid the favourite, in that scenario you want to ignore the amount of aces and unforced errors and the myriad of stats you can get about a tennis game from a monitor site and concentrate on just one, has your man or woman had their serve broken? If yes, trade out, if no, stick with it.

There will be many situations in many different events in many different markets when you come across your stick or twist moments when you’re blind trading and there’s no magical formula apart from learning the market indicators, in other words

Which actions in my event lead to which outcomes?

At the end of the day indicators are just that; they are indicators, they are not set in stone and if it were that easy to trade by numbers then there would be a lot of very rich traders out there.

But at the same time indicators are all you've got, if you’re blind trading you simply have to get to know what the key indicators are for your particular market and the only way you are going to be able to do that is through analysis of the market over a decent period of time.

Summary

If you want to let your winners ride and cut your losses as early as possible, then keep your initial indicators in mind, write them down and say them out loud and at the point of a market action, reassess whether or not they still ring true, if they still ring true let it ride, if not; get the hell outta dodge!

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The Zen Trader