Trading software

Thursday, September 30, 2010

Busy time

I know I haven't posted here in a while but I'm up to my eyes in work so I haven't been trading lately. I'm off to Rome for the weekend so realistically, it will be sometime next week before I get a chance to trade again.


Friday, September 24, 2010

Self fulfilling prophecies

Recently, I finished reading a book called “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” which proved very interesting. The author is mainly talking about trading stocks and shares but the principles can be applied to what we do when trading on Betfair.

The main point the author is trying to make is that humans look too deeply into patterns and graphs and often find trends and theories that can actually be put down to pure randomness. The book was good, don’t get me wrong – but the author (a trader himself) came across as a bit pompous and seemed to completely dismiss the idea that past trends have any meaning in the markets. Unfortunately, he didn’t give a real insight into how he trades himself, other than that he likes to bet against unforeseen circumstances.

While the book made me question some of my strategies and look at the markets in a new way, I don’t fully agree with the author and think that charts are quite useful when you need a feel of how things are going. It’s true to say that past trends won’t necessarily repeat themselves but there are certain self fulfilling prophecies in life and in the markets that can’t be ignored.

They can also be exploited.

Let me give you a real-life example...

As some of you know, I’m a librarian by profession and some time back, I attended a training course in the local county council offices. This building has more than 1,000 people working in it and as you can imagine, the canteen can get quite hectic at certain times of the day.

Traditionally, workers would head to the canteen around 11am for a tea-break and this time became very busy with most or all of the seating areas taken up. So over time, people started to avoid going on break at 11am as there was an expectation that the place would be packed.

At the training course, the tutor broke up the session at 10.45 am for a break so we could ‘beat the queue’ and get a coffee and a seat early. However, everyone else had this idea too and the place was packed.

A few days later, I happened to be in the same building and went up to the canteen at 11.05. Guess what? It was pretty quiet, as most people had been on their break already.

How does this relate to the markets? Well, pack mentality can be significant in both life and in the markets. Because a lot of people believed in something (that the canteen would be busy), they acted en-masse. This has created a predictable trend in the building, and you can now be sure that the busiest time in the canteen is around 10.45 as people leave their desk early to ‘beat the rush’. It’s quite amusing as they don’t seem to realise what they are doing! Eventually, they may cop on and the break times will re-adjust.

In the markets, there are certain prices where you can see something similar happen. For example, take the resistance point prices of a horse (that is, the highest and lowest point that the horse has been matched at in the past).

Let’s say a horse was trading around 4.1 but the highest point the horse has been matched in the past was 4.5...

If the price is rising, we can expect it to surpass 4.2, 4.3 and 4.4 but when it hits 4.5, it will usually stall. Why is this?

It’s because traders (rightly or wrongly) believe that a horse is unlikely to break through the highest price it has been matched at to date. Of course, it’s not impossible for the price to break out - but because there are so many people out there who trade resistance points, it becomes one of those self fulfilling prophecies, for a time at least. Backers put orders in at 4.5 because they think the price will bounce back down when it hits it. The more people that do this, the more the money builds up at 4.5. With all the money building up at 4.5, it gets hard for the layers to push through that price and quite often, the price drops down a tick or two. If there are enough layers in the market, the back money will get eaten away eventually and you’ll have a breakout but generally speaking, the price will test the 4.5 price a number of times.

Provided you get your order in early, this provides a good scalping opportunity. In this case, you would place your back order at 4.5 soon before the price rises near (so you get in ahead of the queue). As soon as the price starts to rise, you will see other backers join you at 4.5. When your order starts to get taken, you immediately fire in a lay at 4.4 and wait for the price to bounce.

Of course, you will need a stop loss in case of a real breakout but I’ve had some good success with this type of trading.

Because people believe something will happen, they will act en-masse. The signal for people to act en-masse may be the clock striking 10.45am or it may be the price rising to 4.5. The point is, it creates a pattern that can be exploited.

By the way, the best time to take a tea-break in my place is 11.10am as you can avoid the people who are trying to avoid the people! 

Monday, September 20, 2010

Feel lucky to have made a profit today

The Challenge: to increase my trading bank by 5% per month.

The story so far...

Starting bank: €1,000 (beginning of May 2010)
Target for end September: €1,276.28
Today’s opening bank: €1,484.75
Today’s closing bank: €1,496.29
Today's profit/loss: +€11.54
Today's turnover: €10,525.41


Only started trading late today as I was doing some work in the garden. I feel relieved to have made a profit as found the markets a bit strange today and could get much of a feel for them.

Quite a few markets I entered seemed volatile and while volatility is needed to trade, sometimes it's a curse when you are using a tight stop loss.

I was scalping for one tick today with my stop loss set for 4 ticks. Numerous times, the market zig zagged taking my order, then my stop loss and then returning back to where it was. This can be pretty frustrating to say the least but it happens now and then and you just have to move on. One particular market took twenty quid on me which left my overall profit at €11.54 over 8 markets.

Saturday, September 18, 2010

Well done Frankie!

The Challenge: to increase my trading bank by 5% per month.

The story so far...

Starting bank: €1,000 (beginning of May 2010)
Target for end September: €1,276.28
Today’s opening bank: €1,426.75
Today’s closing bank: €1,484.75
Today's profit/loss: +€58.00
Today's turnover: €11,615.73

A cracking day for the Betfair balance with a profit of €461.06; however most of that was earned from a traditional win and place bet on Redford in the Ayr Gold Cup which provided a profit of €361.76 and €41.30 respectively. So the actual profit earned from trading was €58.00 which is pretty decent.

I know it's nothing to do with this trading challenge but I'm particularly happy with that bet on Redford. I put it up as a bet in the paper so it was very pleasing to see Frankie storm home. My 'each-way outsider' selections in the Irish Independent newspaper have been going over the bar lately with many placed at big prices. However, I scored a goal today which is a great boost for my article.

Regarding the trading, it all went quite smoothly really. I was just doing some scalping and getting a tick or two here and there. The liquidity wasn't great in some races and traders usually complain about this - however, this also presents an opportunity as you can get in early ahead of the queue especially at the vital crossover prices like 2.0, 3.0, 4.0, 6.0, 10.0 etc.

I'm off out to a school reunion tonight so that tops off a very nice day.

Friday, September 17, 2010

Annoying quirk on Betfair

I was trying some ideas out today and was a small bit ahead when something odd happened costing me nearly 25 quid.

Basically, I had two lay orders on the 5.30 at Newbury and was planning on trying to trade for a one tick profit should any of them get matched.

The next minute, the market was suspended so a horse could be withdrawn - but instead of removing my lay orders, it turned them into SP bets!

Now, I do admit that I had the ‘SP in play’ boxed ticked but the race had not gone in-play, it was just suspended. The reason I had that box ticked was because I had no TV pics today and I find it useful sometimes to close off an open trade at the off rather than going in-running.
Anyway, the point is, they put my bet in as an SP bet when the market was suspended rather than cancelling my bet. I’m a bit pissed off about this as it meant I had two unwanted SP lays:

The problem here is that I couldn’t place a counter back bet to get out until the SP was finalised (in other words, when the market actually went in play for real).
So I waited on the market to go in-play but almost immediately, the prices went against me and I had to get out for a loss of nearly €25.

I guess it’s something to be aware of and it could have been worse but it’s bloody annoying that my bets went to SP when the market was suspended and not when it went in-play (as I had requested).

I’m off out for the night to go to the afters of a wedding so I’m calling it a day. A small loss is shown because of this quirk. Has anyone else seen this happen before?


The Challenge: to increase my trading bank by 5% per month.

The story so far...

Starting bank: €1,000 (beginning of May 2010)
Target for end September: €1,276.28
Today’s opening bank: €1,445.14
Today’s closing bank: €1,426.75
Today's profit/loss: -€18.39
Today's turnover: €4,116.2

Wednesday, September 15, 2010

Technical analysis

As mentioned before, I've been reading a lot of trading books on the stock market as I find that many principles can be applied to trading on the exchanges. Today, I tried out some technical analysis based strategies (mainly using moving averages) with good success and a profit of €16.97 is decent considering the stakes were small. I'm not going to include this profit in my challenge as I had decided beforehand that it was test trading money.

Some people love technical analysis as you can essentially build systems on the data, while others say that past data is useless at predicting what will happen in the future.

I'm somewhere in-between. A lot of the price movements are fairly random and I can see why some people don't believe in TA. However, I also realise that markets, or rather the bettors in them, have memories and will take positions based on previous bets and trades. There's also the people that believe that the 'trend is your friend' and will hop on the bandwagon when the see a rise or fall in prices. People also like backing at certain prices (round numbers for example) and this can be seen on charts - So to say it's completely random would be wrong, although you have to be aware of 'noise' and not let it influence you.

Anyhow, I'm happy with how I done today and look forward to reading more on the subject...

What's more, I've got my hands on "Wall Street" on DVD so I hope to have an enjoyable night in front of the box!

Sunday, September 12, 2010

Bad day - and it's my own fault

The Challenge: to increase my trading bank by 5% per month.

The story so far...

Starting bank: €1,000 (beginning of May 2010)
Target for end September: €1,276.28
Today’s opening bank: €1,526.99
Today’s closing bank: €1,445.14
Today's profit/loss: -€81.85
Today's turnover: €18,452.07


Lost €81.85 today (and a fiver on the football which is separate) and I'm a bit pissed off with myself as it should have been avoided. On one race, I kept thinking the price would go my way and opened up more than one position. I knew deep down I should have just waited and let the bet hit the stop loss (or else let it it my counter trade) but I went back for more and it ended up costing me 78.47 when the price kept going against me.

Again, this is one of those discipline issues I need to work on - if I had of let it hit the stop loss and move on, I would have only lost a tenner.

Still ahead of my target but I can't say I'm not disappointed with myself. On a side note, a book I ordered, 'The Psychology of trading' has arrived so I'm looking forward to seeing if I get anything out of that.

Tuesday, September 7, 2010

Away for a while

I was over in England for the weekend to see my uncle which was good craic. I didn't do any trading but I did have a few bits of work to do and brought the wife's mini laptop. One of the great things these days is the amount of free wifi spots available. Places like McDonalds, Starbucks, Wetherspoons etc all offer free access. I know it's not ideal sitting there with a burger trying to do a bit of work but it's far better than a few years ago where you'd have to try find some sort of run down Internet cafe.

I used the McDonalds wifi as the store is open 24 hours and is only a ten minute walk from my uncles house.

I've quite a lot of work on this week so I don't think I'll get any trading done. This is one of my worries going forward now that the evening racing has more or less ended. Thankfully, I'm ahead of target but nabbing a day or two here and there could be tricky and I hope I don't fall behind. Anyway, I'll post again in a week or so or whenever I get a chance to trade again.

Wednesday, September 1, 2010

August Review

An excellent month in terms of profit and loss which is great as I won’t be able to trade all that much going forward. The evening racing comes to an end which only leaves my days off for trading. I like to try spend Sunday with my wife and daughter so realistically, I’ll only be trading one day per week during the winter (plus some all-weather evening racing).

This may make it difficult to meet targets although that’s why set a realistic target of 5% per month.

The target for the end of September is to have the bank at €1,276.28 and that has already been met so this month, it’s a case of protecting my capital while trying to push the bank forward a little. Nothing too aggressive though.

I’m still learning all the time and am spending some time reading books about trading the stock market (there’s no real books on Betfair trading as yet). Many of these are helpful, especially the psychological end of things. In fact, I think I’ll start doing book reviews on the blog soon. I’ve just ordered two books on trading psychology so I look forward to their arrival.

On a negative side, I still feel that I have one or two discipline issues that need addressed. I still find it hard to accept when a trade goes wrong and am often tempted to try trade my way out of it. I have to learn to move on quicker without letting it get to me.

When a trade goes very bad, I always jot down the reason and here’s a quick copy and paste of that. Sorry about the grammar etc, it’s just from my quick notes:

Too volatile, rushed in
greed, chasing
stop loss too near
couldn't get head around market
getting in too quick
ingoring stops
waiting for the best
too many trades in one direction
not adjusting strategy for market
guessing that there would be a crossover spread
In running twice
greed - getting in late SAVED by R4
went back to market I had previously dismissed as too volatile
was well up at 2 mins but went in for more - got taken out
staking too high on odds-on horses
Chasing bad trades with bigger stakes
boredom trading instead of waiting for oppor.

Making an honest note of your errors can be useful to look back on but you have to be truthful. As you can see, most of these are discipline issues which I hope to work on in September.

Not sure when I’ll get to trade next as I’m off to London this weekend but I’ll post again soon.