How Do You Know When Your Trade Is Wrong?

Each trade is effectively a twofold choice - continuation or reversal?

There is no business more binary than trading. Each trade is effectively a twofold choice – continuation or reversal? All your betting exchange trades depend on how well you answer that question. Everything else is commentary.

Similarly, when it comes to trade management the choice is binary as well. You are either right or wrong. Being right is easy. There is only one way you can be right. The price is moving your way. In all other scenarios you are wrong.

No woudda, coudda, shoudda talk. No “market is just insane” excuses. As they say in the city “If my aunt had balls, she’d be my uncle.”

You. Are. Wrong.

The first step to professional betting exchange trading is being able to say those words to yourself at least ten times each day.

The next step is even more difficult. You have to decide exactly what you are going to do about it. If you were foolish enough to have bet large on your first entry then the choice is simple. Get out. Any loss of more than 1% on your capital on any single trade is mark of a rank amateur and will inevitably cause you to lose 10%, 20% maybe even 50% of your whole account on this one position as you will add madly in size refusing to accept that you are wrong.

If your bet was relatively small and you are sitting on a 10 tick loss then your choices are more nuanced. You can stop out, regroup and re-enter the trade with larger size or you can pick a point farther away, add to the position with size ( 2X or 3X the small initial trade) and make sure that your average cost is now close to the market price.

Here is the key point however. You. Are. Still. Wrong. Being early does not make you right. It just makes you early. So you should not be seeking profits. You are simply looking to minimise losses. You are practicing triage. So instead of that fat profit target that you had on your trade initially you are looking to basically just get out at scratch.

This is perhaps the hardest skill to learn as a betting exchange trader. Not only are we all moral cowards who never want to accept personal responsibility, but we are also all greedy bastards – who when given a chance to escape unscathed by the market – instead view it as a divine validation of on our analytical skills and try to press a bad trade into a big profit.

It doesn’t matter if we sometimes succeed. In fact it is orders of magnitude worse when we do because it only sets us up for a massive loss down the road. There is nothing I hate more than some trader telling me he had 50, 80, 100 winning trades in a row. I always look at such guys, smile politely, congratulate them and know that a year from now they won’t have any money.

Betting exchange  trading is an amazing intellectual challenge that allows you to engage with the world at large every single day. But it’s also the only activity that will instantly expose and lay bare your worst habits, biggest personal weaknesses and greatest moral failings. The sooner you realise that, the more successful you will be.