When Does a Beginner Become a Mug Punter?

We are all learners - the process never ends - but some traders never progress beyond the beginner level, destined never to achieve their expectations or worse, lose a lot of money. Surely from reading posts on the forums all you have to do is "stick with it" or "sign up for the latest course" and all will be well.

For most losing traders, neither option works and just adds to the money already lost. Subscription services would prefer that beginners never stop attempting to become a successful trader, regardless of their ability, for fear of losing them from their income stream.

My previous article, "Too old to trade?",  attracted the following comment from P T,

Quite a sad tale that, James, and not too dissimilar to my own predicament. However, my question is not about age, but more aimed at when should one just give up? Having spent 3 years and seemingly every waking hour working on 'sports trading' (mainly pre-race horses with a dash of football), I've got to the point where something has to give. I bought all the 'guides', studied the youtube videos endlessly, devoured every trading blog and tweet from the 'pros' and it's all been a colossal waste of (precious) time. Having give so much it's hard to just walk away but I find myself becoming increasingly cynical and bitter. The likes of Webb and Caan used to inspire me, but now just immensely irritate me. They'll refer to punters as 'mugs'- like trading is far superior - but in reality, losing pre-race traders like myself are the ultimate mugs as we fund their lifestyles. I'd rather lose to a bookie. Anyway, sorry for the rant! The question is: How long is too long? Great blog btw - best out there.

Yes, it is hard to walk away from a losing investment but walk away you must. Would you leave your money in a bank account if it offered you no interest but entered your name into a regular prize money draw. The Halifax began to do that and I immediately closed my accounts with them. My premium bonds too have been sold off and the money is performing six times better in peer to peer savings accounts.

You have to look at your money objectively and if it is not performing for you then you must move the money elsewhere. Preferably not into the bank accounts of sales and marketing men who have latched on to sports trading as a way of marketing an unattainable lifestyle.

Some traders progress beyond the beginner stage but when should a beginner decide that sports trading is beyond their abilities and should stop before they lose too much money, and maybe their friends and family? This is a difficult question to answer because everyone has different circumstances.

There are those who have disposable income and sports trading is as good as burning dead leaves in their mouth or knocking back bottles of ethanol. Others might go into sports trading because they enjoy the challenge of predicting future results. Then there are those with little income, the unemployed and students, who are lured into sports trading out of desperation for cash.

I would not recommend sports trading to anyone who can't afford to lose. That would immediately preclude the unemployed and students desperate to top-up their loans. I have seen advertising for matched betting (bonus arbitrage) directed towards the unemployed and students as a way of easing their financial difficulties. Matched betting is not risk free and many who try it get sucked into proper trading (where there is inherent risk) and lose money made from matched betting and more. Easy come, easy go.

For those, like myself, who have added sports trading to their portfolio of investments they should (as with any investment) drop it, if it underperforms. If you have two stocks and one is earning whilst the other is chewing up your profits then the loss making stock has to go. The same with sports trading, if it is a drawdown on your portfolio then out it goes.

Then there are those for whom money is no object. They are, I would imagine, the kind of people I once saw when I played poker in London's Regency casino during the late 1990s. Often they were business owners (and the occasional celebrity) with money to burn. After a few spins of the roulette wheel (a sure sign of money to burn) they would sign up for that night's poker tournament. These high-rollers would gamble every hand during the buy-in period, leaving the rocks high-stacked at the end of the buy-in period before the knockout part of the tournament began. For them money was no object but they were shrewd enough never to bet their businesses. Slowly come, slowly go.

Which of the the above are you? How much money is a lot and how much is too much to lose?

In trading forums you might see a beginner asking for help because they have been constantly losing money. Others on the forum console the loser, urging them to carry on. Is that a good thing? If that person will always lose are they being condemned by the other forum users? I can imagine other addictions in which the addict's peers urge them to stick with it. Worse than mere insolvency awaits such people.

The reason why people in forums tell others to stick with it is a kind of herding instinct. A forum is a special kind of club and such clubs often exhibit group think. People are on a betting forum because they have a common purpose, to make money. They think as one and a hit on one is a hit on all. None of the forum members wants to be a loser and seeing someone else do exactly that goes against their belief that anyone can win. They have to deny that people lose money from betting or trading and so they urge the loser to continue in the hope they will turn things around, as they would if in the same circumstances.

A wealthy businessman who visits the casino every weekend to throw away a few thousand pounds at the roulette wheel can afford to do so. He is still a mug punter because he will never have an edge over the casino but he will always have money to throw away unlike others who might watch him "living the life". Would you play roulette just because a high roller has money to burn? And yet people with no sports trading ability try to ape those who they believe are sports trading winners. There is always the chance that the people the beginner is trying to emulate are losers too.

You have to honest with yourself in these circumstances. Is the money lost disposable or should it have been spent on something more important or maybe it should have been saved? Someone on a forum telling you to have another go is no different to meeting a stranger who tells you to, "Try some of this." They have their interest in mind not yours.

If you can afford the losses and don't mind losing all of the time then it's a hobby. However, if you cannot afford the losses, you get angry and frustrated at your inability to make any long-term profit, and you want to give it up then it's an addiction.

It is difficult to say what a beginner should risk to start with because everyone has different amounts of capital. Some beginners might be willing to put up so many hundreds of pounds but as soon as the bankroll takes a few hits they become protective of the remaining bankroll such that they cannot trade effectively. Such traders jump out of trades too early, taking a small loss when staying in the trade might have meant a winning trade or they stay in the trade too long and guarantee a loss rather than taking an early profit.

That is why I advocate algorithmic-trading. Only by using systems that can be tested and proven to work that are then handed over to a bot, which performs optimised money management techniques to do the rest. The algo-trader concentrates on finding edge and the maths does the rest. There is no room for psychological flaws.

Everyone has the right to do with their money as they please. However, a lot of people regret some of the things they did with their money. For me it was being a consumption whore in the 1990s. Luckily I came to my senses and could sell all my junk on eBay. You can't get your money back when you've lost it to someone on the other side of the spread.

If you ask the question "Should I give up?" to someone who needs your monthly subscription fee or income from marketing sports trading then of course you are going to be told to keep plugging away, anyone can win and that the only problem is you, holding yourself back. If you carry on trading with losing techniques that have no edge then that is holding you back too. Jump out of the rut before it takes you somewhere where you don't want to be.

How do you avoid becoming a mug punter?
  • Through the realisation that sports trading is not as easy as others might have you believe.
  • That to be successful you have to devote a significant amount of time to learning the mathematics of trading; probabilities, edge, money management, how markets work, how winning systems are built, tested and implemented etc. Most fail to do so.
  • That trading is a race in itself and you will need the best equipment to act upon trades before others. In some kinds of trading (in-play) you can only gain an edge by being at the event.
  • That if the three rules above are too hard to achieve then you must immediately stop and find something else with which to fill your spare time.
  • Taking a break to re-educate yourself is fine but remember, time heals wounds but not bankrolls. If you come back and carry on as before then you will lose again.