Cold Trading refers to a type of betting exchange trading where knowledge or enjoyment are not necessary to trade successfully and profitably.
In other words the opposite of an Aston Villa supporter sticking his wages on his favourite team purely out of loyalty rather than rationality or data!
This type of Betfair trading has seen a rise in popularity over the past decade or so. It can be lucrative, it can be done from home, and it appeals to many people who are not a loyal fan of any sports player or team, even those who don't enjoy watching any sports at all.
Below I'll explain what cold trading is, where the term comes from, and which Betfair strategies apply.
Cold Trading Terminology
What is this modern obsession with coming up with new names for things, things that have perfectly good (and in this case much more accurate) names already?!
For decades, there has been a well-known term used in stock trading circles. The term is “Technical Trading”, and this is exactly what Cold Trading refers to, except someone came up with a new term for the same thing when applied to trading on Beftair.
Why couldn’t they just use the term Technical Trading for Betfair? Well don’t ask me! It sure would have made a lot more sense.
Ok, I'll get off the soap box now, and I'll use the term “Cold Trading” below to avoid any confusion, despite my disapproval of it!
What is Cold Trading on Betfair?
Many Betfair traders claim that Cold Trading is ‘similar to stock market trading’.
Unfortunately, making such a statement just highlights their ignorance about stock trading, which is something I know a bit about. Cold Trading is only similar to one type of stock trading, as I'll explain.
Some traders describe cold trading as a way to trade Betfair markets ‘without any need for knowledge or enjoyment of the sport in question’. Whilst that’s a tad clumsy, it’s actually reasonably accurate.
A bettor/punter (or sometimes even a trader) might bet on a particular football match because of their love of the game, or the teams involved, as well as their knowledge of the sport.
Another trader, myself for instance, might choose to trade the same game but based almost exclusively on the raw data available in the ‘cold light of day’. See what I did there?! 🙂
The latter is what most people mean when they say someone is trading ‘cold’. The opposite being someone trading/betting on events they have a passion for, hence they would call them ‘hot’ traders. I feel a bit silly even explaining it really, but this is where we are in 2023!
Back High Lay Low
All trading involves buying and selling. On Betfair you’re buying and selling bets, by backing and laying the same outcome on any sports market/event.
Just as with stocks, where you buy low and sell high, on Betfair the key to profitable trading is to back high, and lay low. High means at large odds/prices, low means at low prices or ‘short’ odds. If you’re new to this stuff you would be wise to read my explanation of backing and laying.
Let’s discuss the true meanings and definitions behind the stock market origins of 'Betfair cold trading'.
Most Betfair traders these days are well aware that trading Betfair sports is very similar to stock-exchange trading.
After all, buying and selling bets is no different to buying and selling wheat, gold, oil, or shares on the stock market.
If you can get a good price on both ends of the trade, you’re going to bank profits.
If you can do so consistently, you’re going to earn consistent profits regardless of the commodity you’re trading.
It therefore stands to reason that there are similarities in the way you can trade on Betfair's exchange, and those similarities are strongest when it comes to what I call ‘pre-race trend trading’ (others call it ‘swing trading’), but Range Trading and Pre-Race Betfair Trading in general are extremely similar too.
There are many ways you can sub-categorise stock traders, but the most broad distinction lies between Technical Traders and ‘Fundamental’ Traders, and there’s a fairly even split between the two.
I was a strictly technical trader, but I knew fundamental traders who did very well too.
Fundamental traders are frequently glamorised and tend to be more like ‘gamblers’ than their ‘technical’ counterparts.
In the simplest terms, you can think of a fundamental trader as someone who ‘trades the news’.
For this reason their lifestyle is very much dictated by the news and so it can be a high-stress existence with no shortage of boom and bust. Hence why it makes for exciting film material!
To trade ‘fundamentally’ means to trade based on a broad knowledge of the entire market, the ins and outs of company mergers and acquisitions, the general market, the state of the industry and the wider economy, and all other outside influences which could give you a hint on where your chosen stock’s prices might be heading.
Imagine the impact on a company's share price if an announcement is made across all the global news networks that the company is about to be investigated for tax fraud, or due to a safety concern with their product. Now imagine you have a few million riding on that news! I don't think I'd be sleeping too comfortably either!
A fundamental trader is never too far from a copy of the Financial Times, probably reading it (and others) daily, looking for announcements of new inventions, or new medicines, or any other “news” which might give a tip as to whether a company’s share price will rise or fall.
A technical trader is someone who trades the price data.
Since price data is presented in price charts, it's no surprise that technical traders spend most of their time looking at charts.
Technical analysis is how technical traders find and manage their trades, so they hunt through charts analysing the data looking for trends, support and resistance lines, channels, counter-trend channels, Doji bars and many other ‘technical indicators’.
This is what I spent thousands of hours doing, and I really enjoyed it.
Technical analysis doesn't care much for the news, it only cares about hard data (you might even say cold, hard data 😉 !). You’re looking for indications that prices will rise or fall, and they are remarkably easy to find.
If a stock’s price has been bouncing off a BRN (big round number, a psychological phenomenon which exists in Betfair markets too), such as $100, a technical trader would take note and watch closely.
If the price keeps trying to push up through that ‘barrier’, but repeatedly fails, it’s likely to mark the top of a trend and therefore you can have confidence that the price will turn back down shortly.
The reason is simple, the resistance is like a spring, it builds more tension with each attempt at breaking through.
If/when it does, the market reaction usually causes a large surge upwards after the price 'breakout' through that previous resistance.
I won’t go into the many reasons for this, the main one is that all those who were selling the stock have had their stop losses triggered (which are buy orders) and this pushes the price up fast. Also, less people want to order sells when the price is rising, which compounds the uptrend and helps it rise even more.
- More buyers than sellers means prices will rise.
- More sellers than buyers means prices will fall.
These are fixed 'natural laws' of market dynamics, so they apply to any market you can think of, not just stocks but house prices, used car prices, or even the price of drugs on your street corner! (Don't panic, you've got plenty to keep you going until the morning.)
Cold Trading = Technical Trading, for Betfair
So, in case you haven't cottoned on yet...
What some call ‘hot traders’ on Betfair can, and perhaps should, be called ‘fundamental’ traders. And likewise, a 'cold trader’ is just a 'technical trader' working in the Betfair sports markets.
Trading ‘cold’ means you’re looking purely at the price data, looking for support and resistance just as explained above, maybe hoping for price bands to form so you can trade the price as it leaves those pre-formed boundaries, and so on.
In all honesty, I don’t think the comparison is perfect simply because in the real world, there are very few pure technical traders on Betfair.
Think about it... how many people are trading the racing markets looking only at charts, and not watching the live racing channel to keep an eye on the behaviour of the horses at the line up and listening to commentary etc? Yeah, exactly, about none!
Well, strictly speaking, that is fundamental information, not technical, so the boundaries are not quite so clear in Betfair trading circles, compared to stock trading.
Yes the ladders and charts are providing technical information and indicators, but to focus solely on that data with no regard for what the horses are doing, well that would be semi-suicidal!
So there will always be some crossover in sports trading, but still the emphasis is very much towards the 'technical' side, and for that reason most people regard pre-event trading on Betfair as 'cold trading'.
Use of Charts in Cold Trading
Charts are extremely powerful trading tools, no matter what trading environment you’re in.
In my opinion there is nothing more powerful than ‘historical price data’, to assess what the future price movements might look like. Charts are therefore essential on Betfair too, even if they are not quite as relevant as in stocks.
Basic Betfair charts may not be complex, but they can still show clear signs of support, resistance, trends, and more, as well as volume or liquidity (amount of money changing hands). This makes them an essential tool for trading successfully and profitably on the exchange.
Cold Trading Software
As my regular readers will already know, you can’t trade Betfair in this way (cold/technical) without access to fast data from the exchange. This comes in the form of computer software, and the best ones come with a variety of charting functions.
All types of trading software pull data from the Betfair API which is a data ‘pipe’ delivering raw price data straight to your screen with almost no delay.
By having up to date information on buys and sells (back and lays), you can see which ‘side’ of the market has more 'weight' (force) behind it, and you can open a position with one click, while watching the charts develop to confirm whether to close the trade or let it keep running.
For more you can read my detailed review of Betfair cold trading software options.
My own Betfair methods are a combination of ‘cold trading’ and ‘hot trading’.
As I already said, to wilfully blind yourself to other information is just silly, but some approaches are certainly more technically-focussed than others.
Now that I've explained what this term means, I hope you won’t mind if I go back to using proper terminology in future!
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