So, what’s the secret to trading profitably? Well, the interesting thing is there? Isn’T a huge secret has been known for a long time, but you never see it mentioned.
When you look at the trading market, what you tend to find is people are focused on systems strategies, tactics, it’s a sort of boom boom. Do this do that and make money sort of thing, but it’s very different, and especially if you come from a gambling or a matched betting background, you won’t recognize the characteristics that make a successful trade. Now. That sounds silly because you say well, of course, I know what makes a successful trade it’s going to be something that makes money, but it’s not as simple as that when you’re trading, so I’m going to what I’m going to do in this presentation is show you And buy demonstrates an example of a successful trading strategy, how it was created, but also explain the detail behind it. So that should give you the basis on which you know how you’re going to participate in a market and what your true objective is when trading, because it’s not all about strategies and tactics. So anyway, let’s have a look and see what we can do here.
So the best place to start with a profitable strategy. Well, I say profitable, but let’s have a look at what we can see on the screen here, because the issue that you’ve got is if we actually look at this screen, you can see that I’ve got positive numbers and I’ve got negative numbers. This is a trading strategy that we’re deploying here. You can see I’m winning six pounds 75 when I win and I’m losing six pound fourteen when I lose, but the problem that you have here is that six pounds 75. I have yet to take off commission. So, of course, if you take Commission off of 675, it really lowers the value down and in fact it lowers it.
So much that it’s just above the amount that we’ve actually lost. So in this particular strategy, I’m winning roughly about the same as I’m losing. So, of course you can look at that and you can sort of say well, it’s a bit like flipping a coin heads tails, heads tails, heads tails, it all averages out the time you’re not going to make a penny. However, have a look at the graph that you see behind it, you can see it starts at zero and it rises and Rises and Rises. Pretty much uninterrupted a couple of little ups and downs, but generates a nice smooth output curve, and you can see on the axis on the left-hand side here that this is an account balance. So I’ve gone from zero to about 25,000 and this is a strategy that I deployed this year.
So how do you reconcile the fact that I’ve won or lost about the same amount of money? And yet the strategy is quite clearly worked and produced a very good yield to understand that we need to look at it in a little bit more depth. But it shows you that when you have a strategy, you’ll have a certain payoff and when it loses, you’ll have a certain and negative payoff effectively.
But it’s the difference between the two that generates the profit. But it’s not just that. That’S the way that most people think about trading and about betting and all of these other things, but it’s actually a lot more complex than there. So, let’s, let’s have a look and understand exactly what we’re talking about here. To do that, we need to throw in some reflection. So if we look at a traditional market such as gambling, what we’re looking at here is, you know Liverpool a playing world, so the the gambler goes up and says right.
I want 100 quid on Liverpool, so the only way that they can make money is, you know when Liverpool win, if he wins a lot of money there and when Liverpool don’t win, the two will sort of balance themselves out a bit like on that. First slide that we looked at, it was sort of saying that you know when he places a winning bay he’s gon na win more, but he loses now traditionally, most gamblers don’t even make value judgments. You know that’s a broad sweep if you’re a serious gambler. You will you’ll absolutely make a value judgment, but if you’re, just a laser fair standard, jo-jo average punter you’re – probably just stick a bet on to win, so you don’t really care about the odds that much.
You just think right. We’Re gon na win. It’S a binary thing. You know I’m gon na stick a tenner down because England are gon na win because sometimes I was going to score because the this match is going to end up with this particular result or something like that. But when you describe that pattern of behavior the best way to summarize it is that you’re taking a hundred percent risk, you you put your money down and if you don’t win, you lose that money. So the only way you can make money longer-term is, if you win more when you check this website, and now that makes perfect sense.
So typically most gamblers tend to love big wins. They love to have those large odds come in, but very often they base their decisions. Not around getting those large odds, but nonetheless, what we’re looking at as a gambler, we’ll take a hundred percent risk and they’re looking to return more of that back to them.
The way that I’ve summarized it typically is a gambler. You know it loves to put down ten pounds to win a hundred. Now, if you’re matched betting go, he come for the match, betting community, I actually started doing arbitrage betting.
Now I had to abandon it because I couldn’t scale it but 20 years ago, when I started on Bay affair, I arrived to do arbitrage if you look at the match: betting community. Now it’s fairly similar apart from using offers now rather than outright arbitrage, and when you do that, you’re, basically looking to create a position that has no risk, so a gambler takes loss, lots of risk and match better is looking to take none. You could argue that there is a bit of risk there, because one of the reasons I gave a barber charge was because a bookies welching on odds to me or changing their mind after a place.
My bet and of course I had tried to back off the commitment somewhere else so anyway. That’S another story well Park that for the moment, but gamblers love to take 100 % risk match betters like to take no risk at all. But when you’re trading you’re somewhere in between the two, so as the gambler likes to put down ten pounds to win 100, a trader will put down a hundred to win ten or sometimes maybe even a thousand, to win ten.
It’S all based around the level of risk that they see in a trade, but you can’t eliminate risk when you’re actively trading. It’S just not possible. It’S going to be a balance of several different factors within there, so you can in essence say that what a trader likes to do is they love to take risk, but also be their returns, are limited to a percentage of stake, so gamble puts down a tenner. Wants to win hundreds, the trader is the other way they’ll be putting down 100 to win 10 they’re only ever going to return a small percentage, return of steak and, generally speaking on trading, any positive value will do if I think that there’s an opportunity for trade, That’S almost certainly going to come off.
I will use as much money as I possibly can to do that trade. However, as the uncertainty increases, then my stake decreases. I do have a particular type of staking approach, which I can explain in another video. If you want me to, but typically that’s the way, I’m looking at it, I’m looking for any positive return.
I’M looking at a percentage of my original stake and any positive return will do effectively as long as the risk and is balanced and there’s a sensible approach to that. I’M happy to use as much money as I possibly can to get some sort of return out of the market, but let’s have a look and understand sort of what I’ve described there, but in a more visual manner. So if you look on the left here, what you’ll see is that we have what we’d refer to as traditional gambling. So you know when they win they’re gon na win a large amount when they lose they’re gon na lose a hundred percent of their stake. So the only way that they can make money is by having that win portion, much bigger than the lose portion. When you’re trading you’re going to be putting the same sort of stake into the market.
However, your payoff is going to be much much smaller, so when you’re actively trading, you want you’re gon na have a small win for centage, but you also need to have a small loss percentage where Trading goes completely wrong is, if you put that massive stake into The market and then you sort of think well, you know what actually I think I can get away with turning this into a bet. No, you can’t you just cannot do that. It does not work that way.
You’Re, looking for a small positive percentage or a small negative percentage, and your best bit that you’re trading you’re trading this little bit right here, but you’re gon na, have to risk the same sort of money that you would do with a traditional bet. That’S the way that trading works. If we put it into context here rather extreme context and we’re using 50 pound here to bag 50 pounds, tulay we’ve laid at a lower price from you back out for doing that. Our 50 pounds is 50 P wool. That’S going to change the world, but you can see that the return is a very small percentage of the original stake and when we hedge it, it shrinks even more so basically on the hundred pounds that we’ve put through this market fifty pound on the back. Fifty pound on the lay we’ve returned point two: five percent: it’s absolutely tiny!
So if you turn this into a bet and you lose that’s effectively going to cost you your entire stake and that’s going to take you two hundred trades to get back so this is why, when you look at the visual graphic that we’ve got here, okay, you’re Putting a large stake into the market, but you should only ever risk movement on that. Stick, not the actual stake itself. Otherwise, if you end up losing that fifty pound, it’s going to take you a huge amount of trades to get that money back. Just don’t do it protect your bank?
That’S the number one thing when you first start trading is that you must protect that Bank. Don’T lose it. Don’T do anything stupid! Okay, you’re not gon na make huge amounts you, but if you manage your risk, you’re not going to lose huge amounts either.
It’S gon na be nicely balanced in between the two. So when you’re looking at trading there’s certain things that you need to be aware of profit exists in the market, we know where the profit is. We can measure it, we know how it occurs.
I can look at a market. That’S going to take place tomorrow. You give me the characteristics of the market and I will tell you how much profit is going to be generated within that market. Your mission, as a trader should you choose to accept it is to get some of that profit at the lowest possible risk. Profit exists across all of the markets.
You can measure it it’s there. You can see it, but your role as a trader is not to identify that it’s to be able to get in there and get some of that profit at the lowest risk to your bank. But of course you can’t be right: 100 % of the time, so you have to accept that you’re gon na do some trades that are going to work really well at certain moments and some trades just aren’t going to work very well and, as a consequence, it’s All about getting that balance right, it’s a it’s a set of scale, so you know you win this much over here. You lose this much over here. You just need to tip it slightly in your favor.
That’S the most important thing that you can do is tip that slightly new fav and you’ll. Do it by minimizing the losses that you make maximizing your entry opportunities. You can also do it via a bit of money management as well, and this goes back to the first slide that I showed you. Let’S have a look, how we can create a positive expectancy when were actively reading. If we look on the middle of this slide, you can see that basically, if we have a 50 % strike rate, we win ten pound when we win and we lose 10 pounds strike right, there’s an equal chance of both of those happening.
We’Re gon na lose nothing overall, we’re not going to gain anything. In fact, we may lose a little bit because we’re gon na have to pay a commission on our trade, so overall we would end up with a little net loss on this particular position. So how can we influence that? How can we change things? Well, if we actually look at the options that are available to us, we could cut our loss because if we trade with a strike rate of 50 %, but we can actually make our loss slightly smaller than our win, then you can see. Overall, we end up net up 50 %, I’m winning 10 pound 50 percent of the time, we’re losing five pounds and therefore we end up with a positive expectancy at the other end of the scale.
If you increase your strike rate, then the opposite effect takes place. If you can get your strike rate up to a higher percentage, then in fact what happens is that you can actually afford to lose more than you win and you end up actually making money. So if we go back to that slide that I first showed you and that 25 26 grand or whatever it was, I can’t I don’t know what the number is off top of my head. I’D have to look at the spreadsheet. You can see that the profits and the losses are roughly in equal balance.
However, you can see that we’re progressively making lots of money, so so what am i doing there well what’s actually happening. Is that my strike rate on that trade is over 50 %. So when I’m winning I’m winning more than 50 % the time that 6-pound and when I’m losing that six pound is losing less less than 50 % of the time.
Obviously, if I’ve got a strike rate of 60 % over here, I’m only going to be losing it 40 % over here. So you can actually see what begins to happen. We’Ve actually got a few examples on here where the strike rate is 60 %.
You can see here 60 % winning 10 pounds. 60 percent of the time means if I lose 20 pound 40 percent of the time, I’ll still make a loss. So I need to up my strike rate or lower my loss.
Can you see how this is all working together, so when you’re actively trading the best way to understand how to get profitable is to measure effectively what your trade is doing, how much you’re winning when you actually win how much he losing when you actually lose and How frequently do you win so it’s a combination of they may win, you may lose and your strike rate they all interact together to deliver a profitable trading strategy. So, even if your strike rate is very low, but your potential payoff is high when that comes in. That could be a profitable trading strategy. But you could also have a trading strategy where you get an incredibly high percentage of winners, but when the losses come they are absolutely brutal and huge. You often see this from people trying to flog you stuff, because the strike rate is high, so it feels like you’re winning very very frequently, but when the losses come, it wipes out all of your potential profits, but – and also you know, it feels nice when you’re Actually, winning at a very, very regular rate, it feels great you feel, like you’re, doing a good job.
However, it may be that actually you’re not doing a good job, because your win rate may be high, but your losses will be substantial when they come in. So very often you’ll find that some of the best strategies are low strike rate strategies that have a high payoff. Very often, you know people don’t instinctively look there and when these strategies do occur, they tend to produce outsized payoffs, because people just aren’t bothering with them. However, you know up and down that entire scale. I’Ve got strategies that work at varying levels, so I have a backing strategy on racing where it’s looking for a situation that isn’t going to occur very frequently, but when it does occur it produces a massive payoff.
So I have lost loss, loss, loss, loss, loss, a really really low strike rate and then boom big wind comes in and that more than offsets all of the activity on the other side, so yeah when you’re actively looking at a trading market. This is where you would define your strategy, and I can show you this in different markets in different ways with different payoffs, but each market that you participate in you’re, going to have to come up with a model that sort of describes exactly what your objective is, Because, if you’re losing money, then you can sort of say well, okay, the way to get around this is to up my strike rate, reduce the number of losses that I’ve got or perhaps earn a little bit more money, and you can start to tweak and alter Your strategy to push yourself towards profitability, but yeah when you’re trading. It’S not really a case of saying I just need to win more than I lose it’s a combination of all of those factors and, depending upon what strategy you decide to put into the market and you’ll, get a completely different results depending upon what you’re attempting to Do so, for example, on football, you have very clearly defined parameters, goals, time that can define where your expectancy is, and in tennis, it’s, the number of breaks that you gave a match and the gap between those two breaks defines what likely pay if you’re going to Get there if you’re scalping, you’re gon na have totally different metrics from if you’re trying to trend trade pre off on the racing. And if you do something in play, that’s going to be different as well, but for each market there will be a defined sort of trading model that you should adhere to and metrics that you should be working aggressively to improve. But that’s how all of my strategies start are very often starts at random start playing around to understand where then, what sort of strike rate I’m going to get?
What sort of payoff am I likely to have, and then I will actually amend and modify the trading strategy based upon that, and that allows me to get to profitability yeah. If you want to actively trade, that’s the way that you would get profitable if you’ve enjoyed this video, please like and comment below, but also for an extended video and for more content about trading visit. The vet angel Academy, there’s loads of free videos available there and we’re going to add more over the coming months where you can learn to trade properly. On bed fare you