It’s a well-known fact that around 95% of football traders lose long term.
I’m sure you will agree that this number is extremely high.
But have you ever thought about why this is?
I mean, it can’t be that 95% of traders are incapable of finding winning trades.
I don’t think so. We all have the knowledge and the tools at our disposal to find our fair share of winners.
Below I want to discuss why I believe this is the case. At the end of the day, if we can work out why it is that most people lose, we can use this knowledge to do the opposite and make sure we join the 5% club.
#1 – Their Risk v Reward Ratio is Wrong
The coin flip is an analogy that is often used in trading and betting and for good reason.
Let’s look at an example that I think represents the vast majority of gamblers.
If you were to flip a coin 100 times, it would land on heads approximately 50 times and tails 50 times. If not exactly, it will be close.
The more you flip the coin, the closer the results will be to 50/50. So if I flip the coin 1,000 times, I would expect the difference between the outcomes to be even closer.
Now, look at those heads and tails as if they were winning and losing trades. So the average football trader may do 100 trades and lose 50 and win 50.
If we take the odds of the win at 2.0 or evens, we can see that if they are lucky, they will come out about the same or ‘scratch’ as we sometimes refer to it.
This is because their risk to reward ratio is too low.
If they were to get the same results with average odds of 2.3 they would be in profit.
As an example, if we were using £10 stakes you would have the following.
Scenario #1 (Odds 2.0 @£10 stakes): 100 flips, 50 win, 50 lose. Total profit £500 – £500 = 0
Scenario #2 (Odds 2.3 @£10 stakes): 100 flips, 50 win, 50 lose. Total profit £650 – £500 = +£150
It’s an extremely simple example and relatively obvious when you think about it, but how many of us trade like this?
Of course, the odds will generally dictate the probability of any event occurring and in the case of the coin flip, the true odds are indisputably evens or 2.0 in decimal odds.
But in something as dynamic as a football match, this isn’t the case, is it? And it’s your job to find favourable odds or VALUE to give yourself an edge.
Looking for odds that are WRONG should be one of your main objectives when trading. Only then will you have a sufficient enough edge to profit long term.
It’s ok to have a 50% strike rate, you just need to make sure the odds are well above evens (or your strike rate is above 50%) otherwise you are going to struggle to make a profit. Your trading bank will slowly be depleted.
If you can cut your losses at 50% of your original liability, you will have a 2 to 1 ratio when you have full winning trades which is perfect for a consistent long term profit.
So how do you know when your risk to reward ratio is wrong?
Well, the main sign is you spend the whole month trading, having a mixture of winners and losers but ultimately lose.
Lots of effort and time wasted with nothing to show for it. Not what you want for sure!
TIP: Before you place any trade, you should be asking yourself the following question.
“If I took this trade 100 times and considering the current odds on offer, would I expect to make a profit long term?”
If you can honestly answer yes, then it’s a good trade.
But why 100 times?
Because everything in between is just variance. As with the coin flip, we know that we could quite easily hit a tail or head a few times in a row, in fact, if you tested it yourself, you could well find that you have 5,6,7 or even more in a row.
And the same thing happens with winning and losing trades. We don’t go win, lose, win, lose, win, lose etc
It is more like, win, lose, lose, lose, win, lose, win, win, win, win, win, lose, win, lose, win, win, win, win, win, lose, lose.
You get the picture. Think long term and make sure your risk to reward ratio has a POSITIVE EXPECTED VALUE.
#2 – They don’t cut their losses early enough
This is another major reason why the vast majority of traders lose. They are simply incapable of being strong and trading out when they should.
Trading out at stop loss or when you know the probabilities have turned against you, is one of the hardest things to do.
I get it! It’s tough. Do you think I like pulling the trigger and cashing out?
It often feels like you have two voices vying for your attention. “Trade out, trade out!”, “No, stay in, there’s a goal coming. You will regret it if you trade out!”
I hear those voices too!
It is hard-wired into our human psychology to add to our losing trades. We hate losing. It hurts and can make you feel like you have failed in some way.
But this is the psychological battle faced by ALL traders. Those who can master these thoughts and the emotional aspects of trading are the ones who will ultimately become successful.
It starts with becoming aware of those thoughts. Only then can you address them.
It is also connected to FOMO (Fear Of Missing Out). It is our fear that as soon as we trade out, a goal will come.
Embrace failure! Losers are part of trading. You just have to accept that you got it wrong this time. There’s no shame in it.
By taking a loss at the right time. You help to preserve your bank and not blow it like so many traders do.
If you can make scratch, you should do so unless the probability is in your favour, in which case you should stay in and maximise profits (see point #3 below).
Forget the latest strategies and analysis tricks, the hardest aspect of any form of trading is psychological. Our emotions really come into play especially when our hard-earned money is on the line. If you can overcome the psychological and emotional elements of trading, you have conquered 80% of the battle.
TIP: To overcome this, think that you are going to lose as soon as you put the trade on. That’s right! Think you are going to lose this trade! This will help when the time comes to trade out and take a loss.
You would have already convinced yourself that it was going to lose making it so much easier to trade out when you should.
Any winning trade will then feel even sweeter than it usually does!
#3 – They don’t let winning trades run
Another common trait with us humans is that we are too quick to take a profit and not let our trades run when the odds are in our favour of getting more goals.
Like point number two above, it is another ingrained psychological habit that we all have.
It is also a result of FOMO. We are scared of losing out. “I better take that profit now before it is taken from me”.
The four major fears in trading are:-
- Fear of being wrong
- Fear of a winning trade turning into a losing one
- Fear of missing out
- Fear of loss
Number two in the list is what I am talking about at this point. The fear of losing the profits you’ve already made.
In my spare time (I don’t have much) I do stock trading with a touch of day trading on the side. I am just learning the ropes but there are so many similarities with football trading.
One of the biggest mistakes day traders make is not letting those winners run so they can turn into BIG winners. Once again, it is all about the risk-to-reward ratio.
You may have 100 trades and have 45 small losses, 45 small wins but 10 big winners.
By all means, cut your losses early, but make sure you let winners run where it makes perfect sense to do so. It is these trades that will put you into profit long term.
TIP: If you have a dilemma and feel under pressure to cash out early, try removing your full liability. That way you will have a potentially bigger win if you find more goals, but scratch if you don’t. It’s the perfect compromise!
Happy trading!
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