Having recently received a few questions about the way STOP LOSS works, I’ve decided to write this article.
The advice I give in relation to STOP LOSS for all the tips at Tennis Trading League is 40% of your stake. This is mentioned in a few of my previous articles. This means at no point in any match should you lose more than that, as you should have put a ‘loss limit’ at when you begin trading in a match. 40% loss is also the point at which I consider a trade unsuccessful for the stats. Once the 40% has been hit, I will call the tip unsuccessful, even if the player in question comes back into the match afterwards.
Let’s look at the following example:
Match : Djokovic v Federer
Tip: Back Djokovic @1.5, [email protected]
Your stake: 10 units
Obviously as we can easily understand that if Djokovic wins, our profit here is 5 units.
i.e 10 (our stake) * 1.5 (odds) = 15
If however Djokovic odds go to 1.25 (half of the odds), the first thing that would come to your mind would be 1.5 is 5 profit then 1.25 means we have 2.5. Right? Wrong! Here’s why..
First of all remember we are trading and not betting. If you had bet on a bookie for 1.25 surely your profit is 2.5. But in trading, it is 2.5 only on one side, in this case Djokovic’s. However this is NOT a guaranteed profit and that is the important thing to understand.
One of the many questions that I get from traders is ‘should I lay for the same amount as the back amount’. The answer is a simple NO. The reason being, a same back and lay stake DOES NOT GUARANTEE a profit.
Let’s take the above Djokovic example.
You backed Djoko @1.5 for 10, now you have laid him @1.25 for 10.
Your profit here is 2.5 if Djokovic wins, if he loses you’ve come up empty handed.
Here’s a more in-depth look at what I just wrote..
Backed Djokovic @1.5 for 10 units , Potential Profit = 5 , Potential Loss = 10
Laid Djokovic @1.25 for 10 units, Potential Loss = 2.5, Potential Profit = 10
So basically you are reserving 2.5 out of the 5 (potential profit for backing Djokovic) to get a profit of 10 by laying Djokovic! (Try reading this again if you didn’t pick it up the first time)
Thus, the only way to guarantee a profit is if you increase your liability when you lay from 10 to anything more!
For the above example, every 1 unit you increase by, 0.25 units are being taken off from the ‘potential profit of 5 units’. However this also means 1 unit is added to Federer’s side if he ends up winning.
To break it down, you need to lay exactly 12 units to get an equally guaranteed profit of 2 units on either side.
This also means if you feel confident of Federer fighting back, you can lay off the ‘2 Guaranteed units’ at some stage in the match. However, once you’ve greened out (guaranteed yourself a profit no matter who wins), I only advise laying at very low odds as this means you are not ruining your already achieved profit!
Now on to the big question then, STOP LOSS!
In the above example, the stop loss is triggered at a loss of 4 units (40% of 10 units).
So how does that work out. The principle is exactly the same as above in relation to greening out. Hence applying that, we find that at 1.9 precisely a loss of 4 units is incurred on Djokovic side.
However, again the important thing is, this is not a guaranteed LOSS. I only advice you trading out the market if the loss on both sides is 4 units. The reason for this being, otherwise you are going to trade out a loss in probably most markets you trade. It is absolutely natural for a huge favourite’s odds to jump early on in the match. So you may see a jump from 1.5 to 1.7 or 1.8 or even 2. We have to realise that games starting with 0-30 and the opponent having a few break points are all understandable and those are the reasons for such jumps. No one is assuming a favourite to win 24 points in a row to win a set. Hence such jumps, eventhough unfavourable for us, SHOULD NOT be immediately used as a reason to trade out markets. Indeed this is a fundamental error that most traders make.
So what is the 40% loss limit on both sides. This is 60 decimals away from 1.9 which would be 2.5 precisely for a stake of 6 units.
Backed Djoko @1.5 for 10 units, Potential profit: 5 units, Potential Loss: 10 units
Laid Djoko @ 2.5 for 6 units, Potential loss : 9 units, Potential Profit: 6 units
Overall loss is either , 9 – 5 = 4 units or 10 – 6 = 4 units.
Both at 4 units or 40% stop loss precisely!
If you are new to trading, always realise THE FOLLOWING FUNDAMENTAL POINTS;
If you have backed something at ODDS X, in order to get a profit, the laying odds should be lower than X. The lower it is, the more profitable. This hence implies, if you are laying at odds higher than X, your losses are increasing. In the above example, we laid at 2.5, which is quite far away from our back odds of 1.5!
Some of these odds and stakes are already calculated by me for my personal use always prior to trading. However you can always check the precise calculation by adjusting the stakes and odds on FAIRBOT or BET ANGEL!
In Fairbot, you can do this after tick marking the TRADING option on top of the platform. After this, backing or laying any market will pop up a window with both BACK/LAY options together where you can experiment with the odds and stakes.
THE FOLLOWING TABLE GIVES THE CORRESPONDING BACK/LAY ODDS FOR THE 40% STOP LOSS RULE. A simple example is Lay at 1.46 (circled). Your max loss of 40% is reached when the players odds hit 1.23, and this is where the stop loss should be set.
Also remember that I advise delaying trading especially when Backing Heavy, so adjust your back/lay odds accordingly along with the stop loss.
Thanks for reading…