During the recent debate over finding and acting on value in sports trading someone made the observation that your decision to enter a market should not be influenced by what you think might happen. This is another area of trading 'philosophy' or 'best practice' which I really struggle with.
Surely, before anyone enters a market to trade (or straight bet) on it they have formed an opinion of what might happen within that market.
For the value seekers it goes like this....If the market odds of an outcome are, lets say, evens, and your assessment of the true chance makes those odds 1.9 you have found a value trade / bet. For your bet to get matched someone must, by definition, be of the opposite opinion. You can't both be right.
For the win seeker the same thought process, from a different angle admittedly, must be undertaken.
The value bettor doesn't bet unless he thinks he has identified value, the win seeker doesn't bet unless he thinks he has identified a winner! So both those bettors / traders will certainly be in some of the same markets, albeit for different reasons.
The point I'm labouring to make is that it all boils down to your own opinion of how things will turn out. The best either type of bettor can say of his decision to enter a market is that it was the right thing to do 'in my opinion', until such time as someone invents a fully functional crystal ball. Both decisions reflect, somewhere in the machinations, an assessment of what might happen, and the likelihood of it's happening.
One of the great thing I love about trading is that it offers you the opportunity to be almost right or almost wrong. Despite my recent forays, admittedly half heated, into other sports I basically trade only football. I'm not going to mislead anyone by suggesting I'm some sort of expert - the pinnacle of my soccer career was the school team and a few run outs in the colours of a local pub, However, I'm well read around the subject and would say that I can read a game reasonably well. There is also a plethora of free data, and opinion, around the interwebs. I also think I can get inside a market's head in some situations - where fan money and / or people desperately trying to liquidate poor positions is driving prices higher or lower than they should be.
All of this means that quite a lot of the trades I enter are done so primarily on my opinion of the outcome, in the context of the price on offer. 'Gut feel' you might say.
Driving home from visiting relatives this morning Mrs Gun suffered the commentary of the first half of the Manchester FA Cup derby on Five Live in relative silence. I was thinking to myself that there were probably a lot of betfairers trying to scramble their way out of poor positions by the time it was 0-3!
The commentators could not see past a five or six goal 'revenge' for recent events at Old Trafford. And who could blame them, really? The match sounded completely one sided and Mancini's attacking options looked limited.
Unsurprisingly, when I got the lappy fired up I saw United there to lay at 1.02, and laid them for £1000. At 2-3 I could have traded out for a green book of about £200. Instead I adjusted my position slightly to leave £60 on United and close to £750 on the draw and City. Despite their best efforts City couldn't get a third, and in places Utd could have extended their lead, so ultimately I traded out for just under £150 all round.
Had I found value? I really, really, really don't know. I suspect I had...but the odds were proven right by the fact that City couldn't find an equaliser. Did I do the wrong thing by not taking the £200 when it first went to 2-3? If I thought I had found value should I have stayed in and taken the £60 I had on United in the expectation of the £750 on a draw? Having taken the £150 how sick would I have been had that last minute free kick sailed into the top corner?
This, for me, illustrates the beauty of trading. The £20 I staked on that trade, in truth, was probably dust as a gamble the second my finger pressed the submit button. I knew and accepted that. But I was firmly of the opinion that City would not just roll over and die. So the 'trade' lost, but was a winning trade....fantastic.
Had I genuinely thought City were 100% a defeated team would I probably would not have entered the trade, value or not. In my opinion it was a trade worth doing, and not just in light of it's success.
I was seeking only price movement, and got it. From there on in how you handle the resulting situation is individual and must be down to a degree to personality and risk aversion.
That's my opinion, for what it's worth :-)
Some very interesting observations here Gundulf. Here's my 2 pennies worth on the subject.
ReplyDelete"The point I'm labouring to make is that it all boils down to your own opinion of how things will turn out."
I think the above statement highlights one of the greatest misunderstandings about how we find value. Using "opinion" as a guide to find value is a very dangerous tool, even for those who can read the game well such as yourself. Opinion, despite our best efforts will always become clouded by various events we see in front of us, and how we are feeling that day.
To find value we must attempt to define how we come to a particular "opinion" by looking at statistical analysis an creating a mathematical model that represents a measure by which to guage the current price of the market against. These matematical models are what we band as "systems". Systems define a set of rules by which we plug in statistacal data we have at our disposal to deterime if a price is value or an entry / exit point in the market.
Take your lay of MU for example. If you did this 100 times would you come out on top? A very basic system to represent what you did, may well be as basic as , "Lay the winning team if the price hits 1.02 with at least 45 minutes remaining". Of course if you used that system you WOULD loose or break even in the long run. What you did however was more complex than this. You said yourself that you have a good read on the game, and you will have unwittingly crunched load of stats and data in your head before making the lay. The key is trying to matehmatically define what you did to come to the decision to lay @ 1.02. How often do you lay 1.02 shots and win? Do you even know this? If you know how often you do it and if you come out on top in the long run, then you know you have a winning system, and all you need to do is try and define it. Using "your opionion" alone, however is often fraught with issues as a matehmatical system won't bottle it or become over confident.
Sorry for this rambling post, I enjoy your blog immensly and felt the need to contribute.
As always an interesting and ejoyable read. I find it a bit amusing though that you on one hand cannot understand the thought process of valuetraders and on the other hand operates exactly as a valuetrader would do, I think you are just not aware of it. Let me explain.
ReplyDeleteYou write:
"All of this means that quite a lot of the trades I enter are done so primarily on my opinion of the outcome, in the context of the price on offer. 'Gut feel' you might say."
Keyword here are "in the context of the price on offer". You make an assesment of the probability for event A occuring according to your gut feeling, game reading skills etc and compairs that to the price. No matter how convinced you are you would not take ANY price on offer would you?
You succesfully laid ManU at 1,02, the market price suggested that ManU had a 98 % chance of winning the game but you found the price too low and consiously or unconsiously thought that the probability of ManU not winning was lower than 98 %.
You wrote:
"Had I genuinely thought City were 100% a defeated team would I probably would not have entered the trade, value or not"
Of course you would not have laid if you were 100 % convinced, the market was only 98 % convinced and the value for a back was negative. At the same time the value margin of 2 % was probably too low to justify a back at 1,02.
I see no contradiction between opinion and value, you must just see how they fit together. Your opinion is probably not black or white but a probability, the price in the market reflects a probability. When you see a mismatch you do a trade and make money in the long term, given that your opinion/ assesment of probability is correct long term.
Correction:
ReplyDelete"only 98 % convinced and the value for a lay was negative"
hi folks, just a quick comment after reading the above well-made points..
ReplyDeleteutd 3-0 and lay of 1.02 > the price & probability were exactly right as that was the price available (market forces) irrespective of consensus or traders playing games... you can only back/lay with what's matched
however, the value/opinion/system isn't the relevant factor in these circumstances, it's the over-reaction and potential up/down-side
at 2-0 I tweeted backing city at 40 as should drop to 10 if they scored next... utd promptly made it 3-0 and I tweeted 200 was an even better price!
not that I thought utd would lose but that IF city scored next the reaction would be such as to give a trading profit
this is often the case; it's the market (over) reaction that is key here
1.02 gives very little downside but plenty of potential upside - not that these always work as the team 3 goals down don't always score next but with enough time left in the game and being at home and being man city, the factors combined well for a good 'chance' that city would pull one back and hence the price would tumble. Whether this is value or gut feel or probability isn't really as important as analysing the situation and the probable market reaction
city went 2-3 with a fair bit of time left and thus losing trades did become winners but they were intended to be so as surely all trades are made with the 'intent' of trading out so it's not the that is important but the likelihood of a that is key here
regards
sorry, last sentence should read ' so it's not the price-to-result but the likelihood-of-a-price-change that is key here
ReplyDelete