Amazingly, new traders don’t tend to think about this until they have had some losses!

Any fool can back the favourite and hit the hedge button on their trading software when the favourite wins the first set. Does that make them a trader?

A question that I get asked regularly is:

“What exit point should I use to limit losses?”.

This is the wrong way to think about things. In most cases it is the ENTRY point that limits the potential losses. If you have taken a poor value price then no magical exit point will get you out of trouble.

No trader will get every entry point correct. In tennis if you are taking a position based on which way you think a match will go then you’re trying to pick the winner in a “2 horse race”. There will be many occasions when the favourite doesn’t perform as expected and the market goes in the opposite direction to how you predicted.

One of the most important points in controlling losses is not to use a large percentage of your bank. I recommend using an absolute maximum of 10% of your bank as your stake and preferably 5%. Note that just because you can put £1000 into your trading bank that doesn’t mean you should use £100 stakes until your level of experience allows you to use such stakes. Always increase stake size slowly!!

What should you do? You have several options:

– Do nothing and hope that the favourite comes back as they have just lost concentration.

-Do nothing and pray ( often known as the “rabbit in the headlights” method )

-Follow the technique that I demonstrate in the “when it goes wrong” video

-Hit the hedge button to reduce your red figure ( liability ) and reassess the situation

But which one do you use? This depends on what strategy you are using and your experience. For example the first 2 examples might look to be the same. However if you are more experienced and have some knowledge of the players involved it can be a good strategy to wait. The stronger players can sometimes just lose concentration in the early games of the first set. If they lose their serve early they will often break back in the next couple of games.
If you don’t have that experience then if you do nothing you are being that rabbit.

The trades that get you into trouble are often those when you have let a bet/trade run. What you should be doing if this is one of your strategies is make sure you only trade using a trading application such as BetTrader Evolution or The Geeks Toy. Any application you use will have a Hedge Tool. This will show you at all times the result of clicking the hedge button. If you are in a losing situation then your hedgeable figure will be less than your largest liability on the individual players.

When planning your stakes and strategy you should decide what is the maximum loss you are prepared to take. Only you can decide that figure.
To give you an example of percentages, if I am using stakes of £250 then my maximum acceptable loss per match is between £50 and £60. If the hedgeable figure gets between those values then I admit to myself that the trade is not under control and I hedge out for the loss.
If I lose £60 then I can easily make that back in 2 or 3 trades. If I let it run and lose £250 then it hurts a lot more. Even worse, if I try to rescue the trade it’s easy to lose your discipline and end up with a loss of double your original stake ( or more ).

If any trader ever tells you that they never have losses then they aren’t worth listening to as they are full of B.S.
Losses are a part of trading but if you can be disciplined enough to control them you have a much improved chance of being a profitable trader.