Sunday 10th December 2006

This will go down as Black Sunday for me. It has been my worst trading day of the year, but the loss is just over half of my biggest profit in a day, which was only 3 weeks ago, so I can still have a positive outlook. It's strange how these things, like all statistics tend to level out in the end.

I started in the 2:20 at Musselburgh where I backed Black Chalk for £30 @ 2.00 and layed back @ 1.60 to leave a gain of £12. My troubles started in the 12:50 at Mussleburgh where I backed Wee Forbees for £388 @ 1.90 and proceeded to lay back @ 1.53, it looked like my lay would all be taken but he hit the last fence and could not find enough stamina to get to the line in front. Just £12 of my lay was taken and I was therefore left with a loss of £376. I had another 4 small trades in the next races, with all but one returning small gains, and the other losing less than a pound. Then came a calamity in the 13:50 at Musselburgh where I backed Lets Roll for £900 @ 3.00, which looked a very good price as I took this back just before the last hurdle with him in front, however he hit the hurdle and then proceeded to hang left and was headed on the run in. I did try to lay off but again only got £6 matched so I was left with a big loss of £895. In the 14:15 at Cork I traded more than usual and mainly because I was worried I might make the day even worse. I firstly backed Chicago Vic, before the off, for £522 @ 2.20 and then layed back again before the off @ 2.18. I then backed the same horse for £885 @ 2.50 around mid distance of the race. He was going well but I decided to lay off @ 2.00, this left me in a position of around £450 profit if he won and no loss if he lost. I then decide to lay him for another £100 and was matched @ 1.70. In the final two furlongs Chicago Vic was not looking to run well and I then managed to back the eventual winner, Lala Nova for £52 @ 2.80 to leave me with a profit in the race of £195. Next up for me was the 16:00 at Kempton where I backed Bowl of Cherries for £31 @ 4.28 around one and a half furlongs out when he was just challenging for the lead, he duly won and gave me another £100 profit. That was the end of my racing day and left me nursing a loss of £951.

I had one of my elder (22) daughters round for dinner so I did not get to trade the big match of the day from the start between Chelsea and Arsenal. I did just have a little trade in the last 10 minutes as I backed the under 2.5 goals for £290 @ 1.04 to give me a profit of £12.

Now comes the trade that I am ashamed of and am finding hard to even put into words as I feel I have let myself, my family and my readers down. You all know I like Spanish football and tonight I thought I would trade fairly aggressively on the Valencia v Deportivo match. I backed the unders before kick off for £2400 @ 1.62 and intended laying around two thirds of this back before kick off. I had to go out of the office to sort out a problem with the kids, which took a lot longer than I had intended, when I got back the game was already under way and Valencia were firing on all cylinders with the price to lay back still above my back price. By the time the first goal came I had only layed back £400.

Now I was in the position that a lot of traders get into with a bigger liability than we feel comfortable with, bearing in mind I was meaning to have around £800 liability at kick off. At this point I would normally back the unders for as much as I had already, to lower my exit point for break even, but due to being over exposed to the trade already was reluctant to do that and I only backed another £200 @ 2.53. Now I had a break even exit price of 1.70 against 2.07 if I had traded my normal way. The next goal was scored, from a very dubious penalty award, almost 30 minutes later at a time when I could have got out at 2.07 or better, but as I had to wait for 1.71 I had not got out at all. I now still had a liability of £2400. When the market reformed I did back the unders for £75 at 4.00. Again I should have been in there for a lot more but was well outside my comfort zone with this poor trade so I now had £2475 with a break even exit price of 2.13, instead of probably being out of the position. Even at this point if I had doubled up my exposure at the 4.00 price I would now be on an exit price of 2.85, which I could easily have traded out at. I did lay back in £50 lots at 3.00 down to 2.19 for £300. So you see I could have got out if I had traded in my normal way. Now I made many mistakes here and by saying I should have doubled up at the goals, I don't want you to think that I even considered going in heavier than I did. I have already explained that I was only looking to be at a maximum of £800 at kick off and because of that first mistake I was unable to stick to my strategy. This is a perfect illustration of a common mistake that traders make. If you trade outside of your comfort zone, whether that is £50 or £5000 you are just asking for trouble if the trade starts to go against you. As I stated earlier, this has left me with my biggest trading loss of the year by far at £2889. My weekly total is also my worst for the year at a loss of £1568.

I will not be chasing to make this up. I will trade as usual with the thought that within two weeks I will have made this back again and some.  Another lesson learnt today just reinforces the advice I give to most people about this job that I do. You need 100% concentration with no interruptions at all. I was left in the position today of having no Au Pair as mine was off ill. I did get help some of the day but I was up and down from my desk all afternoon and evening when I should have been rooted to the desk. I can not work this way and I doubt anybody else can.

Comments

[Angelo]

Hej, Ray you are one of the most consistent traders out there,so just forget this day and move one you will be back on track soon. good luck and continue posting, there is a lot to learn from your blog. currently i am doing exams and having a break, but still i like to get updated with other blogs.

[ramps]

It is very frustrating when life gets in the way of doing what you are good at. This is a gentle reminder that alougth you have the gift for trading part of the gift is the need for concentration.

It is extra annoying when the only reason you lost was you felt out of your comfort zone. You could have won big. Trust me I understand I have been there. I hate it when the fear of failure affects the way you act.

[Ray]

Angelo - Thanks for your kind words and good luck with your exams and trading.
Brian - I become more aware that physcology plays a big part of this trading game.
Ray

[traderpete]

Sorry to hear of your bad day Ray.Unfortunately they are inevitable but still bitter.
Good luck mate

[The Gambler]

Commiserations. Plenty opps between now and the end of the year to get it back. And then there is 2007.

[Ray]

Trader Pete and The Gambler,
Thanks very much for your kind words also. If I hadn't been writing this blog I would have had no one to share this with and no comments from my now colleagues and friends, thanks again.
Ray

[Nathan]

Mistakes are the way forward Ray as long as you learn from them, try to take a positive outlook and move forward. You should have a look at the snooker this week, the liquidity is usually not too bad on some of the bigger games, it's on Eurosport. Good Luck and Believe.
Nathan.

[Betfair Trader]

Sorry to hear about the loss. But we all have a bad day sooner or later and it's how we deal with them that can make the difference between long term success and failure.

And on that front your approach is spot on. Look at the loss, work out why it happened and then go back to the basics with a clear head and calm approach. (And maybe a post it note with No Chasing stuck to your monitor!) Stick to the basics and by the new year not only will you have recovered the loss but will be well back ahead of where you were when it happened. Good luck when for when you get involved again.

[Ray]

Betfair Trader,
Thanks very much for your comments. I am just about to start on the recovery mission. It's good to hear from my friends and colleagues at times like this, it is very much appreciate. Good Luck with your trading.

Nathan,
Thanks also for your kind words.
Ray

[Ferdinand]

Hi Ray,

sorry to hear about your loss, this is where we're as trader are being tested. As long as we can keep our calm and most importantly DO NOT CHASE, there shouldn't be any problem. If necessary take a couple of days off to make sure everything is normal before start trading again.

Goodluck mate :)

Ferdinand

[mick]

Hi Ray
The psychology of betting is so complex. I am sorry about your loss yesterday and hope you can discipline yourself not to do it again. I also lost heavily yesterday through crass stupidity. I had not had a good afternoon so went big on the Lyon v PSG game as I was convinced Lyon would win and covered potential problems by partly backing 0-0 0-1 and 1-1. I was determined not to interfere during the game but checked the score when I thought the game was over but discovered it was 1-1 with 4 minutes left. I then put my potential profit on Lyon on to 1-1 but was still adrift so in a panic then put a lot more on the draw. Lyon then grabbed 2 late goals and I was sunk. If I had left things alone or gone up 2 minutes later I would have been ok.
The problem is my brain - I have discipline written in big letters above my computer but somehow my brain can override that and go into panic mode. SO I hope you have a stronger personality than me because I have done it before when I have totally caved in psychologically. There is a very good book by Van Tharp about the psychology of trading although it mainly relates to the stock market. I know like you if I stick to certain boundaries I can make money but I keep giving it away through stupidity.
I agree with you about distractions - it was John Lennon who said life is what happens while you are making other plans. I think it can be a sign to leave things for the day especially when kids are around - I know in the old days if I had to rush to get to the bookies to get a bet on the horse would nearly always lose. Anyway good luck for today and stay strong and lets hope there arent many goal tonight.
Mick

[Ray]

Ferdinand & Mick,
I have had so many messages from readers today that I feel very lucky to have a group of friends like you all to help me through my tough times. I can't express how I feel, but a very big thank you from me to you all.
Ray

[billy]

Hi Ray,
You have my total sympathy for what happened on Sunday.I like you play the exchange for a living and know exactly what you are feeling right now and as you will know very well the next few day will be crucial to keep your discipline.
Best of luck Billy

[Ray]

Hi Billy,
Thansk for your comments. Ir's a tough life but it is all part and parcel of our chosen profession. Today has been slow but profitable so far:)
Good Luck
Ray

[Nick]

Sorry to hear about your loss Ray.
Hope it'll be better for the rest of the week though.

Since someone was talking about Van Tharp , here are a few paragraphs
from his "Psychology chapter" . Not sure if it relates to this situation but maybe other readers will find it useful nonetheless:

................. Snippet from Van Tharp .............

Although there are more than 50 such biases that could affect your performance as a trader, only 2 are appropriate for discussion here. These biases, which affect almost all day traders and keep them from making money in the market, are (1) the need to be right and (2) the lotto bias.

The Need to Be Right
-------------------

The average adult who is playing the market has gone through 12 to 16 years of education in a system that teaches you that 70 percent or less is failure and that 94 percent or better is an A.

Now you are faced with trading the markets in which most good systems are seldom right even 50 percent of the time. And if you don't understand this concept, then reread Chapter 5 on expectancy.

However, the need to be right is a lot more deadly than just looking for trading systems that are right 70 percent of the time or better. There is a big psychological cost.

Suppose you need to be right about a trade. You've purchased EBAY at 144. It's now at 147 and you have a 3-point profit. You are going to have a strong desire to take that profit, especially when the price starts dropping. It suddenly drops to 145.5 and you sell. You've made $1.50 per share, less commissions. But now the stock goes up again and closes out at 153. You've lost $7.50 per share (in opportunity cost) because of your need to be right. It was more important to sell before your profit turned into a loss (i.e., to be right) than it was to have a large profit later. A trader who is fully prepared would have a trading plan that establishes rules that tell how much open profit can be given back in a trade. With such rules on paper, you can help yourself avoid this need to be right.

Let's look at another example. If you got to make this choice once a day for a month, which would you prefer?

a. A sure profit of $900
b. A 95 percent chance of a profit of $1,000 and a 5 percent chance of no profit at all

Make your decision now.

Now that you've answered the question, calculate the expectancy of "b." If you multiply 1,000 times 0.95 and subtract 0 times 0.05, you have an expectancy of $950. That's better than the sure $900, so you should have picked b. However, most people would pick "a" because of the desire to be right and take the sure profit.
Both of these examples, the EBAY example and the tendency for people to pick the sure gain over the higher-expectancy gamble, violate the golden rule of trading, which is to cut your losses short and let your profits run.
Now let's look at the other side of the need to be right-hating to take losses. Let's suppose you have that problem-you hate to take losses. You've purchased EBAY at 145, and now it goes against you. You've decided to put a stop at 140, but the stock gaps down to 139. What do you do if you hate to take losses? What the average person does is to do nothing except to hope that it will come back,

Another 20 minutes pass, and EBAY drops again to 133. And if a 6-point loss was hard to take at 139, how do you feel about a 12-point loss at 133? That's horrible, so you don't take it. It'll come back-you just know it. However, it's suddenly a really bad day for EBAY and the bottom falls out. It drops to 118. Now you've got a 27-point paper loss in just a few hours. What do you do? If you hate losses, you certainly don't want to take it now, but if you're trading on margin, you might be forced to do so-and all because you want to be right and hate to take losses.

OK, now let's look at another exercise. Which of the following would you prefer?

a. A sure loss of $900
b. A 95 percent chance of a $1,000 loss and a 5 percent chance of recovering your losses and getting back to break even

Make your decision now.
If you are like most people, you picked "b." You'll do whatever it takes to not have the loss and get back to even. But let's look at the expectancy of "b." You need to multiply 0.95 times negative $1,000 and then add to it 0.05 times 0. The net result is an expectancy of a loss of $950, which is worse than a sure loss of $900. However, most people will take the unwise gamble (b) over the sure loss (a).
Once again, both of these examples go against the first part of the golden rule of trading-cut your losses short. In the EBAY example, you should have sold out at 139 for a 6-point loss. Instead, your hatred of losses may have forced a 27-point loss. And in the exercise to choose between two losses, if you took the unwise gamble, you also failed to cut your losses short.
You can see why the need to be right is such an insidious bias. Most people would rather be right than make money.

.......... end of snippet

[Ray]

Hi Nick,
That is a very good article. I just gave it a very quick read and will read it properly later,thanks
Ray

[Philip Wilson]

When is the Wake?
Only a truely big man posts this type of thing on the web
It is like saying 'I have a tiny penis'
So fair play
'If at first you don't ......'

I am thinking about lying about how badly I am
doing just to boost my visitors/comments?

Chin Up
Phil aka The Smiling Assassin

[Ray]

Hi Phil, Well I am 6'7" and very well proportioned. I am just overwelmed by the amount of comments I have received today. This is exactly what I had hoped writing the blog would be like. We now have a very good group of traders that can discuss strategies with each other and offer support and even congratulations, without any of the petty comments that you would get on some forums. Thank you.
Ray

[Phil]

Six Foot Seven
Now that is a big Penis!
I had a terrible day (Sunday)too
Was up over 300 schnoops
Then down about 500
Bloody Mosconi Cup -DRAW!
Why was I betting on Pool?
Because I am an old fool!

SA

[Matt]

Hi Ray, We all need these experiences to mould our decisions. I am only starting out and read your blog every day. You express your trading in my language and offer the thoughts behind your actions.

You have helped me look at other markets (Soccer) and when I trade I remember your advice.

I too today was impulsive and layed a horse at large odds which bloody won when I was also out. Lesson 3568 learnt! :-)

Keep up the narrative, it not only helps you but it also helps us mere mortals!

Kind Regards

Matt

[Ray]

Phil,
Perhaps that's why I have 6 children.
Good Luck with your trading. Hey! and I wish I was as old as you.
Ray

[Ray]

Hi Matt,
Thank you also for your kind words. I have been well and truely humbled by the response I have received today. I will continue writing honestly and try to help others with their trading decisions. Yesterday's numbers were very big and red and out of proportion to what I would normally see, however occassionly I get very fortunate and make equally big profits. So although it hurt a lot and made me extremely mad with myself, there was never a moment that I even contemplated doing anything other than continue in this fantastic occupation.
Good Luck
Ray

[Rob]

Ray,

Because you know exactly where you went wrong it no doubt grates even more. On the other hand though because you know where you went wrong it is easy to rectify.

We all need a kick up the arse every now and then and it will probably prove to be a lesson well worth the 3 grand.

Rob

[Ray]

Hi Rob,
Yes it was a mistake but was due to my family needing me. They will allways come first. I have learnt many lessons over the years. Having large loses was a problem that I used to have even when I was only trying to average £25 - £50 / day profit. This was my only major loss of the year so I think I have shown great resolve. This one would not have happened if my family life was as it should be.
Good Luck
Ray