Quite often we get people arriving on the Bet Angel forum and asking about loss recovering systems. They usually get waves of blunt replies. There is a simple explanation, any staking that involves recovering a loss will not work in the long term. It’s a bad thing to do. Let me explain why.
If you do a trade or do some form of betting you’re seeking value from that position, generalising, that is how you make money in the long term.
For example, if you bet something then it has to have a better chance of that bet winning than the odds suggest. If that bet loses, then it’s really just a balance of the two things. The winners that I get against the losers that I get, there is simply no process of recovery.
To win long term, generally speaking, I must win more than I lose.
That is where I make my money and that is how you should do it as well!
Avoid chasing the rabbit down the rabbit hole!
Essentially all loss recovery systems work the same way – you’re just chasing losses, just in different ways.
That classic ‘chase your loss system’ is the martingale betting system. If you lose on the first one you double your bet and then hopefully you’ll win it back on the second one. But the big problem is that you not influencing the position, the bet, the trade – it doesn’t improve your chance of winning. It only escalates your risk, by increasing your stakes.
You may get away with it for a long period of time, but eventually, you will get absolutely slaughtered at some point in the future, making a loss so big that it dwarfs all your previous profits.
Of course, a lot of systems hide that nightmare loss with very high win rates. This means that significantly loss comes in, it looks ‘unlucky’. All manner of excuses can hide that ‘misfortune’
Don’t be afraid of losses
The funny thing is, it’s one of the things that Bet Angel and I get asked about a lot, people say:
“OK, you do this and I can see how you make money from there. What do you do if I lose?!”
– the trading novice
It’s simple: you take a loss! Your aim is for all of your winners to outweigh all of you losers. Losing is part of the numbers game you should be playing. So then they reply…
“Well, I spoke to this guy and he’s got this really great system where when this happens, then you do this!”
– the trading novice
So then I answer with where’s the value in that? The only reason you’ve taken that position is to try and avoid a loss and therefore you’re just chasing losses.
Loss aversion is a powerful force
Loss aversion is the biggest downfall of anybody that’s trading, gambling, doing anything more or less.
It permeates the human mind significantly and is one of the worst things that you can pay attention to. When you’re doing a loss recovery system, that’s what you’re doing, you’re trying to chase your losses by moving into loss aversion mode and that nearly always ends in disaster at some point.
Losses are part of a profitable betting or trading system. Not something to avoid at all costs. Embrace them as part of your overall expectancy. You will never minimise losses by escalating the amount you could lose.
So take some advice from me, don’t use a betting strategy that includes a loss recovery system! I can guarantee you will be better off in the long run if you can come to terms with losses as part of your betting or trading system.
The best system is to manage budgets and rates properly, with a maximum of 5% per trade 🙂