Why It’s a Mistake to Focus on the Stakes NOT the Returns

A pile of £1 coins

It was interesting to read some of the comments in the trading chat room during the Europa League matches last night. In the absence of Steve & Kevin there were some excellent suggestions from the members for in-play trades, particularly in the second half.

The two popular strategies were LTD (lay the draw) and SH15 (Second Half 1.5 Goals) and with plenty at stake in the last group games it was no surprise when the goals started to come. Now, when trading LTD and SH15 there is always a dilemma after the first goal – namely, do I:

(1) Trade out, i.e. exit the trade and leave equal profit on each outcome;
(2) Hedge my bet, i.e. my worst case becomes scratch, whereas my desired outcome means a nice profit;
(3) Let the trade run, i.e. leave all my potential profit on the desired outcome and accept the loss if it doesn’t work out.

Personally my decision is based on my current position in the trading session. If I’m running at a loss for the session I will trade out and take the green. If I’m nicely in profit I will usually hedge. If I’m having a big evening, i.e. big profits, I will likely let the trade run and accept the risk.

Now I must point out that this doesn’t always happen; sometimes my discipline slips and I make the wrong decision, and usually this happens because I get greedy or because I’ve had a frustrating day where the stats have abandoned me! But the vast majority of the time I know where I stand and I know which decision makes the best business sense. Being greedy and chasing losses are never good for business.

Coming back to the choices above. If I trade out or hedge I am inevitably looking at a smaller profit – after all, reduced risk = reduced gains. I may not get these figures quite right, but for simplicity let’s say I stake £10 on over 1.5 second half goals at a price of 3.0. Therefore my potential gross profit is £20 and my risk is £10. At 75 minutes the first goal is scored, so my choices might look something like this:

(1) Trade out for a guaranteed profit of £4;
(2) Hedge, giving scratch if there are no more goals or a profit of £7 if the second goal is scored;
(3) Let it run, so a £10 loss if there are no more goals but a full £20 profit if another one goes in.

Psychologically, at this point I think it’s only natural to eye up the £20 profit. The match may be very lively, there may be plenty to play for, the underdog has taken the lead, etc. Essentially you WANT to give yourself reasons to let the trade run and land the bigger profit. You chose this trade carefully and you don’t want to settle for a measley £4. You also don’t want to risk making no money for the sake of £7. So for the sake of “only £10” why not go for the big win? This may of course not be your thinking/reasoning pattern, but in the past it’s certainly been mine!

But let’s forget the stakes for a moment and concentrate on the returns. The stakes are simply a mathematical calculation based on the bank I’m willing to put at risk to achieve the returns I desire. Please don’t get me wrong, I have a healthy respect for money, but it is only one factor in the overall investment. So taking our example above, I can:

(1) Trade out for a guaranteed return of 40% on my initial £10 risk;
(2) Hedge, removing my risk and giving a return of 70% if another goal goes in;
(3) Let it run, risking a 100% loss but giving a return of 200% if the second goal is scored.

Forget 2 & 3 for a second – a guaranteed 40% return? With no risk? Are you kidding me?! I’ve only been in the market for 30 minutes!

Personally I’ve worked in and around the investments market for over 10 years and I can tell you that if someone offers me any form of risk-free return it’s a FULL STOP; I would politely walk away. But 40% risk-free – come on. If a salesman offered you this would you think it’s too good to be true? I would. Would you ask for more, say 70%? 200%? I wouldn’t.

Now we all know that to get to this risk-free position we must of course make an initial investment, or risk. That’s life. That’s business. But with Goal Profits we have all the resources necessary to get us in to that risk-free position far more often than not. So we don’t need to pile in to a bucket-load of football trades and hope that we win more than we lose. We can select a small number of trades carefully, using all the statistics and trends provided, knowing that we have an edge over the market.

With the correct discipline and mindset I will quite happily accept the following scenario:

* Trade out, -35%
* Trade out, +40%
* Trade out, +30%
* Trade out, -35%
* Trade out, +35%

Trades, 5
Overall position, +35% return on investment
Strike rate, 60%

This example employs a stop-loss of 35% and assumes a modest strike rate of 6 wins in every 10 trades.

So perhaps that “measley £4” isn’t so measley after all. Perhaps the “trade out” is the way to build steady, consistent profits. Personally I operate with a separate “pension” bank which includes trade-outs. And it honestly doesn’t matter how little you start with, it’s about your discipline and your long-term goals. Just try compounding some small, steady profits and you will be pleasantly surprised at what your trading bank might be in 5 years time.

Thanks for reading, I wish you all a successful trading journey.

Goal Profits member: Mark

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1 Comment

  1. I found that a great article to read and hopefully will create a bit of a debate about the ”correct” way of trading those strategies. I read this very early this morning and sat down at my computer, went to ”in play” and found 6 games live, 5 of which were 0-0. Without hesitation or fear I plunged in. (You must take into consideration the Parma game last night was still ringing in my ears). I laid the draw on all five for 10 quid a game. I had a strategy in mind and would not budge from it.

    2 games were at half time, 2 games around 50+ mins and 1 game around 20+ mins.

    Very fortunately for my system there were goals in every game.

    Team cash out Draw result

    Once Caldos 3.10 13.30 1-2
    Athletico 4.96 31.78 0-1
    Racing club 6.25 60.00 1-0
    Quilmes 6.45 63.21 0-1
    CF America 2.77 18.40 3-0

    As you can see if one had cashed out straight after the first goal a profit of 23.50 would have been in the bank. Also you will see that a goal in either of the 0-1 or 1-0 games and an even healthy profit, but the star of the show is wait to take the full profit of 50 Pounds if no cash out was taken. Just to make it clear, the price under the draw column is the profit after taking out the red, Laid for 10 and after a goal buy for 10. The cash out price was the price as soon as I had greened up. The market dances around a bit after a goal and then the cash out price settles. This is where I got the price from.

    The last game was strange with the score at 2-0 Tigers had three red cards between 64-72 mins, the CF had a red at 79 mins, plus 7 yellows in the game in total. Anyone on buy the cards would have put Sporting Index out of business.

    After this experiment I have totally confused myself as to what I should do in future, cash out, wait for the goal to even it out again or take out red and wait. My plan here was to take out the red on the first goal and wait for the draw at the end. Five games no profit no loss, but good fun.

    What would others have done?

    Dutchy.

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