In this series of articles I like to step back from the day to day of trading and think more in depth about how to improve my trading game. I like to learn new things, absorb different views and think about how I adapt my approach as I go. So every time I have thoughts I think are worth sharing I’ll put out one of these articles.
This week, I have been reviewing famous trading quotes to remind myself of the core principles behind my strategy on both the Index and in more traditional forms of trading.
These classic techniques stay remarkably relevant even across very different markets.
I’ve selected the best 8 and given my views on how they can be used on the Index to make big money and, perhaps more importantly, keep it.
8 Great Trading Quotes and How They Will Help You Make Money on the Football Index
1. “The desire for constant action is responsible for many losses on Wall Street.”
“Over trading” is probably the most common mistake that traders make not just on the Football Index but in stock trading too. Some traders think they need to take home some money everyday as if they were working for a wage. It is better to view it more as a farmer planting seeds, waiting for them to grow and then harvesting at the right time of year.
It is human nature to chase quick fortunes. It is hard to watch players flying up when you are not involved in that particular party. It is hard to have a big match day ahead without any players involved in it. But it is bankroll suicide to trade for entertainment, boredom or the Fear of Missing Out. If you want to bet recreationally, you will probably get better odds at the bookies backing the player you like to score. Trying to pick out who will win Performance Buzz on a treble dividends day is a total mugs game.
Treat these situations as a personal test. Most people think you are playing against the market, but you are really playing against yourself. If you can stay disciplined in these situations and not get involved for the wrong reasons you might not see an immediate reward but I guarantee you will be much happier with your profits over the long term.2. “Big opportunities come infrequently. When it rains gold put out the bucket not the thimble”
This echoes the “play tight” strategy from my Lessons from Online Poker article. I spoke then of betting big when you have the odds in your favour and just letting it drop when you are not very sure you will win. I work with a high threshold and generally only back a player I am 90%+ sure will make money. This means cutting out all of the “hmm, maybe’s” and “he could be good ifs” from my portfolio and focusing my cash on the ones in which I am very confident.
This allows me to make healthy size bets on the players with the best odds of earning me money. And I can reliably monitor their progress so I can cut off any that do not go my way before too much damage is done. In this way, I have never suffered a loss on the Index that has caused me any real concern.
Because my analysis is strong and extensive, the vast majority of my trades make money and when they do, I have enough investment behind them to really make the most of it.
3. “Elements of good trading are 1) cutting losses 2) cutting losses and 3 cutting losses.”
The secret to being a great trader is not being right all the time. The most important thing is to make big profits on your good trades and small losses on your bad trades. We often devote a lot of time to thinking about how to make money and not enough to working out how to keep it.
Being able to avoid losing money is more important than being able to make money. You must be able to realise when you have made a bad bet and get out before any more damage is done.
If you are correct half of the time when speculating on a player, you are still likely to make money provided you know how to cut your losses on the bad trades. If your analysis is strong and you can be correct 7/8 times out of 10 and you cut off your bad trades quickly you will be an elite trader.
But how do we know when we are sensibly cutting a loss or panic selling too early? The answer lies in the fundamentals behind the player and the reason why you bought in the first place.
If you bought a player based on solid research and evidence then he will have fundamental value that will out live any short term bit of bad news. As long as these sound reasons for your investment remain true, you are usually fine to ride out any short term blip. If these facts have changed, and you no longer see the same value in the player, it is probably time to exit. If all else fails, I trust my instinct. If a player I own is making me feel uncomfortable, I get out and don’t look back.
Compare this to buying a player because you read a “hot tip” or on an impulse without much analysis. You have no real evidence or faith in the player so you have no way of knowing whether you should sell or not when bad news comes.4. “If you want a friend, get a dog.”
This is one of my favourites because it is very important to remain aware of the selfish nature of trading. Social Media is full of people pumping up players they own and trashing players they want to be cheaper for their own ends.
To be a successful trader, you have to remain sceptical of anyone else’s opinion and always do your own research. If you blindly follow others you will come to a bad end. Nobody is right all the time, no matter how much anyone claims to be an expert, guru or master. The fact is, the Index has not existed long enough for anyone to be claiming to have “mastered” it.
It is also a brutal reality that most of the money people have made on the Index is not through smart trading but through new traders coming in as the platform grows. People boasting huge Returns on Investment may well be using the most ludicrous strategies and getting away with it in what has been a very friendly market environment. These are the people most at risk of taking a beating when the more challenging times come because they have become over confident.
No markets sustain this kind of euphoria forever and it is important to keep learning and adopt solid strategy so you are less likely to get bruised when the market has a downturn.
Of course, there are definitely helpful people out there and after a while you might decide that certain people usually talk sense. But nobody will be right all the time and you should always do your own research before investing your money.
5. “Be fearful when others are greedy, and greedy when others are fearful.”
In times when the market is flying and people are plowing in money, that is the time when experienced traders are the most cautious. These times of over exuberance almost always come before a fall, it is just the natural cycle of markets. The Football Index has largely been insulated from the worst of this because of the rapid growth in the platform, although it has had it’s blips. You always have to watch this closely however because times will come when things slow down or drop.
This could be as people cash out over the summer, or an unexpected bit of news from the Football Index CEO such as a rule change. It is not a question of if these will happen but when. Another often said trading quote is that “the impossible happens twice a year.” As traders we must be aware of this and try to make sure we are not over exposed particularly at the most volatile times of year. For us, this is as the season is nearing it’s end and as any rule changes are likely to be introduced over the summer.
On the flip side, it is usually when the market is in a panic and prices are dropping that the best value can be found. I call this buying season and I will be working out which players have become under-valued and buying them up greedily.
This approach applies to both my overall strategy and to individual trades. I manage how much I have in the Index and how much cash is sitting on the sidelines depending on the time of year and how confident I am feeling. And for individual players I almost never chase players who have sharply risen and am more likely to look at the players declining in value when considering who to buy.6. “Never let a win go to your head, or a loss to your heart”
A big win or a big loss both create their own traps. Strong emotions often result in bad trades.
Over-confidence can be a killer. A big gamble that pays off can convince you that you were a genius to lump half of your bankroll on that obscure Nigerian who happened to pick up a transfer link and made you a fat profit. It can lead you to believe that you can pull off gambles again and again until inevitably your bankroll implodes.
Equally, you can place good bets and still lose. Don’t worry about these. Just focus on buying good players for good reasons and the law of probability will be working in your favour.
If you have been seriously burned by a loss, you should definitely get out of the trade and avoid jumping straight back into something else to try to recover your loss. It is very hard to make good decisions after a big loss as your emotions are probably affecting your decision making. It is very tempting to plow straight back into something else to chase a rapid recovery. But it is often best to take a few days off if you have had a serious loss so that you can come back with a clear head.7. “Know what you own and why you own it.
One of the most important things is in trading is having a solid technique for selecting your buys. You have to have a solid rationale behind the choice so that you can have confidence in it. If that transfer link is all that was supporting the value, you have put your money at the mercy of the rumour mill.
You have to continually monitor your players to make sure that those reasons still hold. If they do, you can hold even in the face of some minor bad news. And it will be an easy decision to cut losses if the reasons you bought the player no longer exist.
Now, some people make good money from flipping transfers but the fact is this does not come for free. It is obvious who to buy, but you have to be up at the crack of dawn to get on the bus early and then be monitoring the news all day to work out when to jump off.
The reality is most people cannot do this, they have jobs and lives and if they take their eye off the ball for an hour or two they can be left carrying some very heavy bags. So unless you are consciously working this strategy and can commit the time, you should steer clear because it is a losing strategy in the medium to long term, even if you get the odd win.8. “Take your profits or someone else will take them for you.”
When our trades go well it is really important to lock in your profits at the right moment before they drain away. If I see a big crash coming or I think my player has become over-valued I will cash in.
Generally, we want to sell as the hype around the player reaches its peak. And we want to avoid Instant Selling as much as possible because you often get way below the market price. Remember – to sell to another trader you must be selling whilst others still think there is reason to buy. This might mean selling to short term or recreational players who are buying him up ahead of that Champions League Semi-Final.
But what if we sell too early? A lot of people consider it a failure if they bought a player cheap, took a good profit then sold only to see him rise even further. For example, I sold Neymar at £7. Having bought him at just £2, I was really happy with that trade. Did I care when he went up to £10 or higher? No, because my profits went into Ronaldo at £5 and and Salah at £4 and I made even more. When I sold those two my money went into other targets I now consider better value. And so it rolls on.
You do not need to ride one player all the way to the top. I often see people saying that they hold the most expensive players because they will rise with the Index. This is true but it is not unique to the top players. When the players at the top of the Index rise, they tend to drag the other players up with them. Psychologically, if Neymar is £15, other players start to look very cheap in comparison.
These are just a selection of quotes that have helped shape my trading strategy over many years on both the Index and in other forms of trading. But there are many ways to make money on the Football Index, you might do better by adapting them to your own strategy.
Which leads me to my last quote which feels like an appropriate one to finish on:
“The most important thing about an investment philosophy is that you have one.”
If you find this post useful please like the post on Twitter or share using the below buttons. You can also follow me on Twitter at @_FI_trader for additional daily thoughts and tips.