Why You Should Never Chase Losses
These blog posts which I put together on this topic get me really fired up, I am passionate about you guys becoming better traders as any member of the site will testify. This is an important post to read….
I will be covering why people chase losses, why you should stop and also how you can stop.
If you have ever placed a trade, you will know that there will always be losses, you cannot win every trade. There is a variance of wins and losses, this is standard, you cannot escape this. These losses are normal, but we are not, we are human and we can get very easily caught up in the emotions of these losses and we feel frustrated, sorry for ourselves or desperate to ‘win that money back.’ Guess what happens?
You start to make very bad decisions, trading off script. This is what the mug punters do, start chasing losses, it is so important that you don't let the losses influence your decision making.
Why Do People Chase Losses?
I think it’s best to first start by addressing why people actually chase the losses, everybody who trades or bets on events want to make their selections winners. A long run of losers can cause huge frustration, even making you anxious, making you feel like giving up.
At BTC we all say how you have to work with a set bankroll, when you lose a significant portion of the bankroll you feel like you are in a hole. That the only way to get out is to increase the stakes to get back what you’ve lost. I mean you are due a winner aren’t you? That Twitter guy’s trades always win, I’ll load on some of his picks.
The truth is we chase losses because we are weak, ruled by our emotions and we are wired up to make decisions based on these emotions.
Don’t Be All About The Results
One of the main things I preach is that we aren’t trying to guess the outcome, we are looking for value in the market. I am not really too focused on the results, I focus on good value and sticking to my plan - which gives me a clear entry and exit point and I follow it to the letter. This means that long term the results will come and I have protected the bank to be about the long-term, I don’t have to adjust my staking or anything when I am losing - although sometimes I drop my stakes massively and just go to a market I am sure of gaining 1 small tick and get say 1p green just to see the green figures.
It’s All About The Stats
Every single thing in trading can be measured, it’s all about the stats (turns out we’ve built a really solid stats engine as well for those on the inside of BTC!).
Remember in life there are no real inherently unlucky people, if you make a large number of trades most traders will have roughly the same sort of luck, the end result comes down to how you have picked and executed your trades.
Most traders I have spoken to over the last 8 years start to chase losses when they feel they have been unlucky, something is working against them. If you understand trading its all about the stats, you will grasp that this feeling of something working against them is nonsense - you are actually on the wrong side of variance, which is inevitable or you aren’t following the trading plan.
If it's that you aren’t following your trading plan then you can change that straight away - follow it!
If it’s that you are on the other side of variance then keep trading, following the same staking you have been doing, follow the plan - you are trading with value, protecting the bank.
In the long term you will come out on top - many forget this is a long term game.
Letting go of your emotions is one of the keys to success and it really is a must if you want to move into trading full time and have trading as your main income source. Separating your emotions from the results of the trades may be difficult, but you will have to, it will supercharge your trading!
Now listen, I know it's OK for me to write this blog post and say don’t get hung up on the results, I've been trading for over 8 years now, I don’t expect you to do this straight away. Please if you only take one thing from this let it be this- only when you are consistently profitable at lower stakes should you increase your stakes, never do it at other times.
You are trading to protect the bank, sticking to the plan, you are making good value trades.
The biggest enemy in trading on the Betfair exchanges is you. Stick to the plan, study the stats and never chase the losses and I can pretty much guarantee you’ll get to where you want to.