Monday 19 December 2011

The vexing question of 'Value' in trading.

I think most people reading this or any other trading / betting blog will have a basic understanding of the concept of 'value' in relation to straight forward betting. You are looking to get involved in a bet when the odds on offer are better than your estimation of the chance of success for that outcome. Getting 2.1 on 'Heads' in the coin toss is the obvious, if unlikely, example. Mathematically of course it's impossible to argue against this... if you accept that you will likely lose more times than you will win then it is apparent that the only way to make money is to make more than you 'should' on your winners and lose less than you 'should' on your losers. The ability to analyse form, trends and markets is a must, of course, and (true) 'inside information' could prove invaluable.

Does this same definition apply to trading the sports markets? I really, honestly, am not sure.

The basic premise above still makes perfect sense in a trading environment - if you can secure odds which are better than the true odds on an outcome you will make more long term. What prompted me to pen this little missive is this paragraph in The Sultan's interview with Cassini on Centre Court Trading:

When learning, what did you find the hardest aspect of trading to crack?
The hardest part of trading is identifying the entry and exit points. Anyone can back the unders in a football match, wait five minutes for the price to drop a few ticks, and lock in a profit, but was the entry point value? Was the exit point value? A lot of people consider this to be trading, but to me, without a valid reason to enter or exit a market, it’s gambling. The predictability of price movements is the big problem with trading football in my opinion. The scarcity of goals means that prices trend in a very predictable way, and if the opening price was correct, you are unlikely to find value during the game. If the opening price wasn’t correct, then my approach is to take the value bet and let it run.
Many readers probably do as I do and scalp the unders markets in a football match. Why do we do this? One reason, as Cassini states above, is because the price movements are so predictable. All the time there is no goal, unders will reduce in price. So if I back £100 at 2, lay at 1.98, back at 1.98, lay at 1.96... recycling that same £100 and adding to it every time there is no goal, does it really matter if my entry and exit points are 'value' according to the traditional definition. I've struggled with this one - and I don't think it does!

The reason I enter this market is usually to cover another trade in the same match where I am slightly more 'value conscious'. It might not be a classical approach but if I intend to stake say £50 on a correct score trade and I can scalp a £40 green on both sides of the overs / unders in the same match then in my mind a) that's a valid reason to enter and exit that market and b) it enables me to view the entire match under one overall 'umbrella'. The gamble involved, of course, is that a goal might be scored after a back has been matched and before the lay has been matched. But that is a calculated gamble in my opinion and, yes, of course I've been caught! Many times! But I'm still 'in the game' and slowly but surely edging forward.... this time next year, Rodney!

I'd be interested in what people think and am quite happy to be in a minority of one :-)

5 comments:

  1. Hi

    I agree with your comment about doing the over and unders markets. I don't see any problem in backing a market at under 2.5 and the laying it. As long as you don't leave it too long, it doesn't matter if what you do is 'value' because you will have locked in a profit anyways.

    Good luck!

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  2. Gundulf Vs Cassini, Frost Vs Nixon, will pale into insignificance. Read both articles, still undecided, does a person's level of risk aversion come into this. Is Cassini more conservcative than you , or , disturbingly, Is Cassini Wrong ?

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  3. I'm no expert on this subject and cannot reel off the percentages and probability calculations like Cassini but I understand the basics. I'm with Cassini on this one.

    The first comment says 'As long as you don't leave it too long'. How can you possibly know how long to leave it? A goal being scored in football is a completely random event, so what are you basing staying in the market on? Surely the only thing you can base it on as a trader, is whether the price is value or not. If it is, you stay in, if it isn't, you come out. Otherwise, you are just guessing and hoping, which is pure gambling.

    'It doesn't matter if what you do is value because you will have locked in profit anyways' - not if a goal is scored you won't! In the long run, your losses will almost certainly exceed your wins because you will have been taking prices regardless of probability.

    I used to think the same way as Dave and 'anon' but realise now that this is not trading, it's gambling. You can still make profit from it but you'll need a hell of a lot of wins compared to losses and be able to accurately predict which games will have few goals AND predict when those goals are likely to be scored AND hope you are quick enough to get matched before the suspend sign arrives.

    By dipping in and out the market when it seems like a goal might be scored, you may as well be betting on a video game where you try to press the button as quickly as you can to get the goalkeeper to dive and save a shot. The only difference is, you get much less than 5 seconds delay in waiting for the keeper to dive in a video game!

    Sorry, comment has gotten much longer than expected! Not criticising anyone here, just wanted to add my opinion and to see what others make of it. I'll admit if I'm wrong, maybe I'm missing something but as someone who did used to trade the unders/overs in this way, I stopped because it was really just too risky.

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  4. Is Cassini more conservative than you, or, disturbingly, Is Cassini Wrong ?

    I think we can rule the latter out! But I am willing to hear evidence to the contrary.

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  5. Thanks for the comments guys.

    Anon - beginning to wonder now mate to be honest...

    AG - I'm not picking a fight with anyone :-)

    Sultan - thanks for taking the time and trouble to pen such a detailed analysis of what I wrote. It's certainly causing me to stop and think.

    Cassini - wrong? Heaven forfend!

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