The Advantages of Short Term Trading

First published in 2007, and yes it works even better today.

How I turned £3,000 into £100,000 with very little risk in one year!

The secret of successful trading on UK horseracing favourites in the final minutes before the off is simple: the less time you hold a position the better. When making trading decisions based on nothing more than the most recent price pattern you have to accept that things can turn against you instantly. As there is no way of knowing which trade is going to be the bad one then you have to enter each new trade with the assumption that it is going to be the one that gets you. Therefore it logically follows that if the trade that you have just opened is going to lose money then you should get out of it as fast as you can! The quicker you make yourself flat and get out of danger the better.

What do we call a short term position? You may think that a minute is not a long time to hold a position but a lot can go wrong in a minute. If you were to hold the same position for 30 seconds then you instantly halve your risk, but you are still sitting there like a sitting duck for a full half a minute. As you are not aware of everything that is going on in the market you are exposing yourself to factors over which you have no control or even knowledge. To make money consistently you cannot be putting yourself in that position because you cannot consistently predict such a complex series of events as can happen in half a minute or a minute without getting your fair share wrong. If you’re taking small one and two tick profits but taking large 4 or 5 tick losses when the price goes against you then you’re going to lose money.

You must only trade when you are as sure as you can possibly be of what is going to happen, and the longer you’re in it, the more factors can come into play against you. Forget about how much money you are going to make if you are right, your chance of getting out unscathed is inversely proportional to the amount of time that you are at risk: the longer you’re in it the more that can go wrong. Trading is all about damage limitation, and if you can survive each trade while making the occasional profit here and there then you are succeeding. The overriding emotions of successful trading should be fear and anxiety coupled with a general feeling that you’re getting nowhere fast whilst wishing that you didn’t have to put up with this shit to make a few quid.

Survival is the name of the game and every trade that you get out of without losing is a success, and the best way to make sure a trade doesn’t cost you money is to get out of it immediately. By immediately I mean within 5 or 10 seconds, every extra second you’re exposed is increasing your chances of the price turning against you. Your chance of a profit may also be increasing but you should only have entered the trade with the certainty that it was going to be an instant winner, if you are now holding a position for a different reason than your first reason then all you’re doing is gambling. The most clueless gambler in the world can put money on red and make money when red comes in; making money by holding onto a trade until it comes right doesn’t mean you did the right thing. If you can’t get out of your trade with an instant small profit then you should get out immediately at the same price that you got in at, a Scratch trade.

If you can make a single tick profit on 30% of your trades and break even on the rest of your trades you will make money by getting it right less than half of the time on an up or down chance. And by reducing the amount of time that you hold a position to the absolute minimum as well as reducing your profit goal to the absolute minimum you are boiling each trade down to as close to a coin flip as possible because within such constricting conditions the price can only do 1 of 3 things before it is liquidated: go up, go down or stay the same. If you are using the bid and offer to your advantage and asking for good prices then you can either make a small profit or break even no matter which one of the 3 outcomes happens.

The short term trader is an operator, a mathematical grinder capable of making consistent profits from buying and selling something intelligently. The simple reason for this is that they spend such a small amount of time actually exposed to the market whilst at the same time watching every slightest market move with an eye for a quick profit. A trader’s biggest advantage is being able to choose when to be invested and when to hold back, and an ultra short term trader will be open to every opportunity whilst also being unexposed to any risk at all for over 99% of the time that he is watching the market.

Short term trading is a volume game: as your profit only equates to a fraction of a percent on turnover you have to do as much volume as you can to make it worthwhile. For instance, you can see that my percentage profit return on turnover in 2003, 2004 and 2005 from scalping the Betfair horseracing markets was less than a quarter of one percent. Many people would not bother with such a small return and would be tempted away by the relatively huge payouts (and losses) of guessing which horse will win the race. But by doing a turnover of over GBP50 Million worth of bets during that time using a trading bank of only GBP3000 I made that quarter of a percent worth having. A quarter of a percent of GBP50 million is over GBP100,000 profit without ever having a losing week and at one point going 11 months without a losing day. And I was only able to do such a large volume of bets because by taking such small profits and doing lots of scratch trades and getting out of all positions quickly I was free to churn my bank over and over again. A losing trade of several ticks not only takes all of the profits from several profitable trades but more importantly it robs you of turnover also. All the time that you are sitting on a losing trade doing nothing more than hoping and praying that it will come back is lost time where you could be turning over more money, scratching and taking single tick profits.

Written by Adam Todd.

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Tony Hargraves lifts the lid, and removes the mystery on Sports and Horse trading. If you every wanted to see how a professional trader thinks and makes money, where most flounder, then you need to grab Tony's books. These ebooks include many video's showing how you too can be a full or part time trader. Tony also travels between Australia and the UK teaching face to face trading, sports and horses.

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Steve Davidson

www.winningmore.com