I've spoken previously about The Benefits Of A Betfair Trading Buddy in that article I spoke about how having a trading buddy can be beneficial when it comes to assessing and post analysing trades.
I also spoke about how trading can be a lonely place and if you don’t have friends who understand what you are doing or just dismiss it out of hand, then, having a trading buddy or partner can alleviate some of the inevitable loneliness that you can feel trading on your own.
What I did not speak about is the very powerful human psychological responses of social grouping.
The instinct in any one human to affiliate him or herself with a social group is extremely powerful, it is the reason social media sites are so popular, it’s the reason there are cliques in schools and universities, even preschoolers will naturally fall into social groups, without even knowing why they are attracted to a particular group.
Social grouping was a big reason why ordinary citizens in Nazi Germany were enticed by the rhetoric of the time; that and incremental change of opinion.
Even in an emergency situation it’s been proved through experiment that if enough people are running away from a clearly marked emergency exit then the rest will follow.
I remember seeing a magic show whereby the performer addressed the entire audience minus one member, he told them that on his signal they should all get up and start applauding for no reason.
When the audience member returned the performer carried on with his performance as though nothing had happened, halfway through a sentence in the middle of an anecdote he gave the signal for the audience to applaud.
The cameras watched the audience member who wasn't in on the secret, for the first second or so he looked around at his fellow audience members in confusion wondering why they had all just burst out clapping and cheering, within a second and a half he had got up and still looking slightly confused, joined the other members of the audience in applause.
These types of experiments have been repeated over and over again in many different scenarios and each one comes down to the conclusion that even when our own personal instincts are feeding us information about a given situation, we’ll ignore them just to fit in with the group.
In evolutionary terms this makes complete sense and you can see this behaviour in other animals, especially herd animals, if you’re an impala and the herd suddenly start sprinting away from the watering hole that you've spent half a day walking to, it’s probably not a good idea to ignore them and think “Sod it, I'm thirsty, I'm hanging round for a drink and I’ll catch them up later.” Chances are, there won’t be a later, not for you anyway.
Beware The Betfair Herd
So how does social grouping effect us when we’re trading on the Betfair Exchange in the same room at the same time, possibly on the same event as our trading buddy?
Well, if things are going well and you both see it like that, then there’s no problem, you’ll probably both end up getting the maximum profit from the trade, the problem comes when one of you is reading the event incorrectly, then the potential for some serious negative feedback loops is super high.
Let me give you a real world scenario; myself and my trading partner were at his place on a Champions League night, on that night there was also some English League Cup football on.
I decided to blind trade under 2.5 goals in the Burnley/Brighton game, whilst my trading partner was on one of the Champions League games (I don’t remember which one), crucially he too was hoping for a low score in his game.
At eighteen minutes Brighton, who were the underdogs scored a goal; now I had said to myself beforehand that if there was a goal before half an hour to get out of there as that would mean that I had read it wrong as I was expecting a long drawn out goalless first half, slipping into a turgid second half where maybe a goal would be scored.
But instead of backing out for a relatively small loss, I stayed in the trade; why?
Well my trading partner’s game had gone wrong a few minutes earlier with a goal for the underdog, he resolutely declared that he was sticking in the trade and not panicking, my social grouping response was triggered and for no palpable reason, I decided to stay in my trade.
Burnley equalised ten minutes later and again I could have got out for a small loss, but instead I stayed.
At around this point my trading partner was making all sorts of covering bets on his game, so coming up to half-time in my game I decided to cover under 3.5 goals and wait till half time to trade out of under 2.5 goals which I just about managed to.
By the end of the game I had made trades at under 3.5, 4.5 and 5.5 my net loss on the game was £8, if I’d traded out at 0-1 I could have halved that loss.
Both our games over we should have called it a night, I could feel instinctively that something had happened and that I should retreat and analyse, but instead my trading buddy flicked over the channel and we saw that Barcelona were playing a lowly league opponent on a terrible pitch.
My trading buddy pointed out that the over 1.5 goals market seemed extremely high for a team containing Lionel Messi, surely they would score a goal early in the second half and we could claw back some losses for the night.
So we both backed over 1.5 goals and then watched as a disinterested Messi strolled around the pitch like he couldn't care less about football and Barcelona just couldn't string more than two passes together.
Afterwards as I was going home I thought about the Barcelona game and the fact that we both watched the half-time commentary, we both heard the commentators say that Barcelona were playing awfully.
But as soon as my trading buddy said “Yes, but its Barcelona, they always score at least one goal.” All rational thought went out the window and I followed him blindly into a trade that my instinct was telling me to stay away from.
I compared this to other times we’d been in the same room and only one of us was trading, the one not trading would act as the voice of reason, questioning, sometimes gently probing, that had been a much more rewarding experience and we had both experienced positive feedback loops trading in this way.
This is because the human mind finds it a lot easier to be objective about somebody else's problems. The reason for this is that we have a default setting of negative, this was wonderfully proved by a famous experiment that studied the dreams of over 10,000 people in around eight different countries over 12 years.
The study looked at tens of thousands of dreams from people of varying ages and they found out that around 78% of those dreams were negative.
So if you are told about a problem like a friend trying to work out when to trade out of a particular event, it is easy to explore the possible downside. The upshot to this is that you will provide a balance to your friend's thoughts as he or she is emotionally invested in the trade and you are not.
However if you are both involved in the trade then very powerful influences take over in the brain, firstly there is confirmation bias, whereby because of your emotional investment into the trade you find it hard to think negatively about it, even if it is clearly going wrong. Then this is reinforced with the phenomena of social grouping.
The best way to avoid the negative feedback loop of confirmation bias reinforced by social grouping is to check before hand what your trading buddy is going to be trading on before either they come round to you or you go round to them.
If you do find out you are going to be trading on the same thing, then you need to state your specific trading strategy as you are telling your buddy what you're going to be trading on, so for instance.
Let's say you ring your trading buddy and she says she is going to trade on the Champions' League game between Dortmund and Madrid later, she is planning to lay Madrid. In that case if you too were planning the same thing then you might say something along the lines of;
"Me too, I had planned to lay them for the first half as they have been starting really slow of late, I'm hoping for a goal from Dortmund in which case I'm going to back Madrid pretty soon after that. However if it's 0-0 at HT I'm still going to back out of it for a small profit and if Madrid score in the first half, that will be my cue to back out for a loss."
It is very important you set out your plans like this; as I say in my article How To Use Vocalisation To Win Big On Betfair, speaking out loud drags the intended conscious action from the subconscious mind and in the situation whereby you may be trading on the same thing with another person in the same room, vocalising has the added benefit of making sure that their is no confusion in your mind about which plan you are following, yours or theirs.
Another bonus of vocalising in this way, is that it will encourage your trading buddy to vocalise his plans as well which sets up a shared cognitive environment that is primed for positive feedback.
So for instance if when you tell your buddy your plans he says; "My plan is slightly different, I actually think that they are going to draw or lose the game so even if they score first I'm going to hang in there. If they go 0-2 or they are still 0-1 up at 75 minutes then I'll trade out for a loss."
Now we both know that our plans are different so come half time and it is 0-0 we know that we have different agendas, if we hadn't clearly laid those plans out to each other we wouldn't know and would be facing a scenario whereby I either persuade my buddy to go along with my plan and trade out now or he persuades me to go along with him and stick in the market, which will cause confusion and maybe even an argument.
Don't assume that because you are trading on the same event in the same market as someone that you have the same agenda. This is the core difference between trading and betting, when you place a bet that is going to ride all the way to the end, it doesn't matter that you are doing the same thing as a friend as you are both in the same situation.
However when trading on the Betfair Exchange your strategy may be wildly different from your trading buddy and even if it isn't, it is still good to know as then you are much more likely to remind each other of your contingency plans.
So the key to same room trading is ideally you want to be trading on different things, but whether you are or not, review your trading strategies with each other, notice the differences between them and acknowledge them with each other.
If they are the same or similar, this will allow you to remind each other of your original plans and avoid blindly going where you said you wouldn't go.
Stick to these methods and your same room trading experiences will be joyful, ignore them and you'll end up in a world of pain.
Good luck and happy trading.
The Zen Trader