The Betfair Trader / Editor / 05 November 2007 / Leave a comment

The Betfair Trader tells us about his new self-imposed rules and strategies for continuing to build on his success

With a new £101,000 challenge in place I thought I'd put some new bankroll rules into action to help me achieve the new goal. Proper bankroll management is a critical part of being a winning trader. Afterall, you're going to make nothing if you blow everything first.

Discipline underpins the whole bankroll issue. Retain that and you'll always be in the game. If nothing else that will always give you the opportunity to be a successful trader. A well thought out bankroll strategy gives you the chance to be a winner. Keeps you liquid. It's a crucial first step in being a consistent long-term winning trader.

So what are my new bankroll rules? At their most basic they are this. I will operate with a £12,000 Betfair balance. The most I am willing to lose on an individual event is £1,250.

Before I go into that in a little more detail regular readers will probably notice the similarities to my original bankroll strategy as well as the one I trialled for the Cricket World Cup before adopting it full time at the end of the tournament. The basic principles are the same. The only real difference is the size of the sums involved.

As i've discussed with some readers I'd actually upped my operating balance again since adopting the post Cricket World Cup rules and peaked with around £17k in my Betfair account. By that time I was operating to a max loss of £1.5k from trading as well as any losses from outright bets that I considered value in running. It was at that point that disaster struck. I'd got ahead of myself a little and following that loss I decided not only to stop the outright value bets but also that I needed both a new challenge (for focus) and to spell out my new bankroll rules. (for discipline)

So. A £12k operating balance with a £1.25k max loss per event. Small fry to some. But big numbers from where I started with just £1k in total. That £12k and £1.25k tell their own story too. They reflect the way I trade. Let's say I used all that £12k and made £1.4k on an event. I'd consider that a result. But another trader might use just £2k and make a £2k profit. Assuming a run of the mill trading event what differentiates us here is attitude to risk. I'd be willing to place a small wager that my long term results would be more consistent than the other traders. That my overall losses are smaller. That I don't experience as many highs and lows. (Well, either that or they're a far superior trader!)

Of course, the real point here isn't about who makes what profit. But how. I might have £12k sat in my Betfair account. But there's no way I'm going to use it all until I'm pretty sure I know the result.

An example....

Team A and Team B are evens the pair at the start of a cricket match. The reality is £12k balance or no £12k balance my biggest liability in this situation is rarely going to reach £1k. Which given I can cut a loss if things move against me means perhaps a £150 - £200 all red book if I hit a stop loss point.

Now, it's later in the match. Team A are on top and their price is 1.1. For the sake of a straightforward illustration let's say my book stands at £750 green Team A and a level £0 Team B. In this situation I am far more willing to have a larger liability on Team B than at the start of the match. If I consider the price warrants it I will now happily bet £5k on Team A. This gives me a book of £1.25k green Team A and £5k red Team B. Of course, if the price moves against me I can bail from the £5k back. Each tick it moves against me costs me £50. But if I chose my spot to make the bet well I will have plenty of time to bail here and still make a decent profit. I just have to pick the point I will get out at and stick to it.

What I'm effectively doing then is building up a green during a match with a limited liability approach before trying to maximise my position at the end of the match. Bet £1k at 1.1 in this position and you add £100 to your winnings. Bet £5k and you add £500. Repeat this 10 times a month and you're £4k better off. The effect this approach has had on my own trading is clearly visible in this graph. Despite the fact that there were simply more events to trade you haven't got to be the sharpest tool in the box to realise I increased my operating balance from £1k to £4k in the March to April 2007 period.

Of course, I'm not saying I'm just going to lump on short odds. Anything but. Picking the right situations is crucial. And then the amount of that £12k I will be willing to use in a lump on situation will depend largely on my exisiting book. Back to the example of Team A at 1.1 near the end of that cricket match. I'm not going to lump £5k on a 1.1 shot if I have a book of £50 green Team A and level £0 Team B. If the price moves just two ticks against me I'm staring at an all red book.

The point is having that £12k there gives me the opportunity to maximise my green from situations where my book allows it. Crucially it also gives me the chance to be involved in two events at once. Say a slow moving test match and an ODI. It enables me to run sizeable exposures in both games. In the past I've found I'm missing out on opportunities to make money simply because my operating balance has been set up for a single event only. I've estimated £12k will allow me to comfortably trade two concurrent events within my max loss limit. I'll see how it goes but if I find I'm still missing out I may go ahead and increase my operating Betfair balance to £15k.

So there you have it. My new bankroll strategy. Of course, I've really only covered the basics but the black and white amounts are there as well as some of my more general management principles. The prospect of losing my new max loss of £1.25k isn't enthralling but looking back through the 18 months or so I've been keeping the blog I've had just 3/4 max losses. The reality is I tend to just cut losses and leave a match if things keep going wrong.

Concentrating on maximum losses, while necessary, is also a little pessimistic too though. So on a more positive note I'll be keeping my fingers crossed and hoping these new rules keep me in the green and on the road to that £101,000

To read more from the Betfair Trader:

http://thebetfairtrader.blogspot.com/

Tags: betting on cricket, cricket trading, The Betfair trader