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Risk and Bankroll Management

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I’ve been asked by several readers to discuss my thoughts on risk and bankroll management, so I’ll try and help with some personal thoughts.

Personally I’m very risk averse.  So by that I mean that I hate taking more risks than most.  For me, protecting my trading bank is absolutely key.  I will not do anything which will jeopardise my trading bank, or a significant proportion of it.  There are a number of factors that traders need to consider when calculating a viable amount to risk on a given trade, so that I don’t over-stake and risk great damage to my bank.

When I used to just do pre-match betting only, I used to be very cautious too with my risk.  I’d only risk a maximum of 3% of my betting bankroll on a given bet.  I see so many phrases online, full of bravado, such as ‘full bank on her!’ or ‘I’m huge on him!’ and this is the wrong mentality.  Of course, these characters may or may not be full bank or huge on a player - that’s the risk you take when you listen to others on social media (perhaps another article on those dangers that could be written!).  Whilst with a cautious management of bankroll you only accumulate growth in a slower way, it’s the most secure way of doing so.  Unless your strategies or prices on each player are flawed, you will earn money.  Who won the race?  The hare or the tortoise?

Now I’ll only risk a maximum of about 8% of my trading bank on an individual trade.  I do personally feel there’s scope for this to be a little larger, around 10-12% but I wouldn’t want to risk any more than that.  When I say 8%, it’s important to clarify that.  I will possibly add to that, if I want to ‘average down’ my average lay price, but the biggest position I take has been a liability of about 11% of my trading bank.  It’s important to clarify this further by saying that I won’t trade such a high percentage in the most volatile situations that occur in matches, such as tiebreaks or deciding sets.  That percentage would be a first set trade, where a lot of the sting has already been taken out of the price of the player I wish to lay.  Also I need to say that I would never let this whole sum be risked by letting a trade run in it’s entirety.  I’m in and out relatively quickly.  The biggest loss that can occur is around 2.3% of my trading bankroll in any one trade.

There’s been a lot written on the necessity to have stop-losses.  It’s not necessarily required in a lot of scenarios.  When people say stop-losses, usually they mean get out when their red hedging figure hits a certain point.  This doesn’t necessarily interest me, because my trades tend to have that built in.

I’ll use a (very) rough example.  Two players start at evens.  One player breaks and leads *4-3 in the first set.  His price, depending on a few factors, will be roughly around the 1.5 mark.  If he holds his serve twice and wins the set, say 6-4, in all likelihood his price will be 1.3ish.  So effectively if you know you’re getting out at the end of the set, you have your stop loss built in automatically.  Hence if you lay the leader at 1.5 and you know you will trade out if the player a break down doesn’t get the break back, that’s your stop loss.  So if you lay the leader at 1.5 for £50 liability, and he holds, if you then back the player at 1.3 for £115.38 at the end of the set, your equal red on either player is £15.38.  So automatically you are restricting your loss to just over 30% of your liability.  It’s a simplistic example, and the prices for the scenarios may not be spot on as they’re hugely situational, but you should understand what I mean.  As long as you know your potential downside, and are fine with that amount because its a small percentage of your bankroll, then you are in a good position.

To execute these sort of trades obviously requires discipline.  I’m sure most readers have been tempted to hold onto losing positions for a little longer than they perhaps felt they should.  Doing so puts your bankroll at much higher risk.  Every single successful gambler or trader needs discipline - without discipline you are nothing, no matter how talented you are at reading matches, programming systems, whatever.   There’s no shame at all in exiting with a red position if the trade you enter if the trade goes against you.  

Obviously you need to let some trades run, such as in a final set or if you’re laying a player a set and a break up in the second set, but by staking less in these scenarios you can clearly still control your losses to a manageable amount.  

One thing that’s very hard to do is to maintain mental stability, but it’s key.  Today I’ve had a rollercoaster of a day.  I was quickly up over double my average daily profit, and then gave the vast majority of it back.  Even though I was still up my mental state was a little hazy.  Thankfully some of my remaining entry points gave me just slightly above my average daily profit, but I still feel that my head has gone through the mill.  You get that sometimes.  Nothing wrong with going out and leaving the rest of the matches if your head isn’t all there.  People seem split on profit-taking.  By that I mean when you’re having a huge day, do you just turn the laptop off and bank your profit?  Or are you leaving expected value behind doing that?  Theoretically I suppose you are.  But if your mental state is going to be better for future days trading maybe you aren’t.  I don’t think there’s an exact answer for that one.  Do what suits you best.

As long as you show discipline, have solid, consistent strategies based on the right reasons and control your losses then there’s no reason that you can’t make good money trading tennis.  If you are just starting to trade, there’s no reason why you need to start big.  Start with trades just for several pounds and see how you get on.  If you stake small but your strategies are flawed, you’ll only lose a small amount.  Staking more doesn’t mean you’ll win more often, it will just multiply your losses.  

I’m always open to any questions that readers may have, feel free to contact me at any time and I’ll do my best to get back to you with a speedy response.

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