I wanted to do an article whereby I gave advice about getting through the bad times, because we've all had those hard trading times on Betfair when we just can’t buy a winning trade. Everything seems to be going against us and we struggle to find any kind of form. These are the bad times for a sports trader and how we cope with the bad times will have a direct and very real effect on how much money we can potentially make on Betfair.
But as I started writing I realised that getting through the bad times isn't the problem most sports traders face. Usually traders are very resilient and we tend to get through the bad times eventually, it’s the good times that can really stuff us up, the good times are far more dangerous than the bad times, because not only can we start to think we're invulnerable we have more to lose during the good times.
What Is Survival Mode?
Let’s you and I partake in a little thought experiment, let’s assume that I decide that I want to give you £20 per week to trade on Betfair and I state that the rules are;
- You can trade on anything you like
Within the week you must keep your balance above zero or the experiment’s over.
- At the end of the week you have to take out your balance and deposit it in a bank account.
Each week is reset to zero and you just start with my £20 again.
OK, sound’s pretty simple, what do you think would be the outcome of such an experiment?
I can tell you that it is highly likely that you would make and lose small sums of money, that is to say you’d hardly ever, if at all, risk losing the whole £20 in one trade. Conversely you would be unlikely to win large sums as you’d be putting the money on lower odds (probably will happen) events.
The reason you’d do this, is because you’d know that you couldn't afford many losses or the game would be over and you’d want to keep the game going and thus increase your chances of making a load of money off the back of my investment..
If we kept this game going for one year, my guess is that you’d be in profit for anywhere between £80 and £200, maybe more. The reason for this is that you’d soon get into a groove of what worked for you and you’d soon fall into a pattern of winning between £5 and £10 per week, occasionally posting losses of a few pounds, in other words you’d be in Betfair survival mode.
The Flip Side
Now let’s take part in the same experiment with the same rules, the only difference is I'm now giving you £150 a week to trade with.
So now each week you have 7 days to make as much as you can before having to bank what’s in your Betfair account, just like before, but this time your mentality is different, you can feel the difference as you’re reading this can’t you?
Let me spell it out for you, the difference is risk perception; you see when I suggest to you that I'm going to give you £20 a week, you think to yourself;
"Cool, I’ll be sensible with that and hopefully I’ll build up a nice little bankroll by the end of the year.”
In other words you are in survival mode.
In the second scenario whereby I promise you £150 a week, win or lose, you think, great; I’m going to make loads of money here!” In other words you’re in spend mode.
Is that really the case? Do we treat money differently according to how much we have? I think the answer to that question is obvious, if you have 100 million in the bank as opposed to one hundred pounds then your spending habits will be different, this is basic human nature.
But what does that mean for the Betfair trader?
If we take the natural human instinct to spend more when we have more onto Betfair then we are setting ourselves up for a boom and bust scenario with no stability whatsoever.
In the second experiment whereby I give you £150 every week to trade, I guarantee that most people would not show a profit after a year, whereas most people who took the £20 would show a profit or a tiny loss; why?
It’s to do with our risk/reward perception; when you’re given £20 you feel that because it’s a small amount of money you should take small risks and more importantly you are mentally prepared for small rewards. Therefore you are extremely unlikely to invest in trades such as point to point tennis betting or next scorer markets on the football, because whilst those bets are potentially high yield, they are also high risk and you wouldn’t have room for many mistakes for your £20.
In other words you stick to trades whereby you’ll get your money’s worth, when you have £150 every week, you feel that you can ‘afford’ to try some high risk strategies as if they come off you’ll be greatly rewarded and if they don’t you still have more money to play with. In other words you mentally prepare yourself for big rewards.
So whilst you wouldn't dream of risking £20 on who’s going to win the next point in the Federer/Nadal match if losing that £20 meant the end of your Betfair trading career. However you wouldn’t be so reticent if you knew that you could afford to lose that £20 because you’ll still have £130 left and six and a half more chances to guess who the next scorer will be or what the correct score in a football match will be.
Let’s stop and reflect on that a moment.
Our attitude to taking risks isn't dependent on how risky we believe the action to be, but to what extent we’ll be able to try the same risk again without penalty.
This isn't just restricted to Betfair you can see this play out again and again in all areas of our lives.
For instance if I told you that I would give you a large sum of money for jumping across a ravine but the penalty for failure was that you would fall to your death then most people would refuse this risk.
If however I tell you that I have set up a huge inflatable at the bottom which will save your life should you miss, then this becomes more acceptable because even if you mess up you’ll get loads more chances to do it again.
So whether we take a risk or not is not down to how risky we believe it to be, but whether we’ll be able to try again should we fail.
This is a handy trait to have in life, especially when you look at us in evolutionary terms; however it’s not such a good attitude to have when trading sports.
If we have this attitude on Betfair, then all that’s going to happen is that when we are playing with a little money, we will tend to do well until we have built our bank to what we consider to be a decent amount. At which point we’ll start taking bigger risks and we’ll lose the money we so frugally built up.
This is true of a LOT of traders on Betfair, they lose money and go into survival mode and then at some point they click out of that and go into spend mode and continue this cycle until they get bored and start taking unacceptable risks even when they’re meant to be in survival mode.
If the traders who do this keep trading notebooks and review their notes regularly, then they would see that they are making bets that they wouldn't make when they've got a small bankroll, yet as soon as their roll grows they slip into high-risk-low-yield trades.
They would then be able to say to themselves; “Right, I am not going to do correct score predictions any more, because I only seem to win 1 in 10 and the 1 win definitely doesn’t pay for the 9 losses.”
It’s as simple as that, that’s why you need to write your opening and closing balance in each trading record note that you keep. Because then you’ll be able to see at a glance whether your mentality has changed due to the size of your bankroll.
Because, let’s face it people, the only thing that changes in a risky bet before and after we have money, is the amount of times we’re able to take that risk again should we lose, the actual riskiness of the bet hasn’t changed at all, meaning the chances of us winning it hasn’t changed at all.
It’s absolutely bloody obvious when I write it down like this and most traders know this truth without being able to articulate it. But the fact is, if you ask most traders if they take bigger risks just because their bankrolls are bigger, then most of them; if they’re being honest, will say yes.
This is a crazy form of self sabotage and things are prone to go against us enough without adding our own actions to the host of negative variables that might crop up as we trade on this market or that.
This is why I advise all new users on Betfair to start small, which will mean different things to different traders, it might mean £20 to one and £500 to another, the amount doesn't matter as long as it feels like a small amount to you.
Once you've successfully multiplied your small amount by a few hundred percent or more, you can review your trading habits and start to make your own set of rules which will help you stay in survival mode throughout your trading life on Betfair.
Good luck and happy trading
The Zen Trader