It's a simple equation, isn't it? Though, after taking a lot of time to trawl other blogs, trading service sites and numerous other info sources, it was surprising to me how little is mentioned about this aspect of trading. Or rather, how much emphasis is placed on telling us to think about it.
This should be the first thing we consider after a potential trade has been identified. Profitable pre race traders will always know their exit, particularly in swing trading, and it will rarely be equal or more than the potential up side.
When trading football, much focus is placed on stats, in particular when trading the Correct Score market, hence so many use "insurance" in other markets. Something I've personally moved away from due the long term erosion of profit, (in my experience). Probability combined with stats then compared to available prices is where value is found but, in reality, that value only comes from making the exact same trade, with the exact same set of circumstances again and again. More and more we seek better value trades but it's fast becoming apparent that that value is in ensuring we can make the trade with as little damage as possible.
Last week I tweeted that I had entered the Premiership Winners Market, backing Man Utd at 14's for their next four fixtures. My logic for entering being they had reached their rock bottom with the defeat at MK Dons and could only get better plus the other big sides each had tough fixtures across the same period. Seemingly, a draw with Burnley is an improvement but the market pushed them out to as high as 22.5. This was the real opportunity. Had both City and Chelsea won their games on Saturday, Utd would not have drifted by very much but a draw or loss by either side would result in Utd's price pushing down comparatively hard. After City's loss they came back to 16's, which is where I exited. Now with my original stake covered and free green for the next three fixtures.
When Chelsea went ahead against Everton, their price crashed to 1.11, possible downside 11 ticks, possible upside huge but my exit was 1.34 after Everton got their first. More than double the potential loss for an improbable outcome.
As my trading is now split 50/50 with football and trading nags in-running, the same principle must apply. My entries always begin with a lay so, you would assume my downside is a great deal higher than my up. Not the case, as my exit is planned and available before I enter, as such, my red is small compared to possible green.
In short; seek the value to protect your biggest asset, your bank.