... from Mssrs JDT and Haltdalsufo. Thank you both for taking the time and trouble to pen such long, well argued and interesting comments. BTW I assume you are both gents, if not, my apologies!
Turning first to JDT's post. I didn't mean to imply that value seeking traders just go on gut feel. I appreciate that most, if not all, will have spreadsheets, databases and other resources with which to gauge whether or no a price represents value. Your point about opinion being clouded by what they see or hear, and to an extent how they feel themselves is a valid one and that I think is what I was trying to say.
I've personally got some doubts about too much reliance on a purely mathematical model... for two reasons. First it makes no allowance for emotion - such as the way in which Leeds seemed to perform in the immediate aftermath of Gary Speed's death for example. Second I can think of at least two purely mathematical models that I'd rather not emulate.One is the automated trading systems in bank currency rooms a few years ago and secondly who can forget the 'no hurricane' messages put out by the Met Office running computers and software (not to mention far more data!) much more sophisticated than anything most traders can aspire to!
Haltdalsufo points out the irony that I struggle with the concept of value trading yet seem to follow its thought process and act accordingly. I was aware of that dichotomy as I wrote the post, funnily enough, and I think he is right to a great extent when he says that a lot of my actions are taken after number crunching the value question, albeit subconsciously.
Returning to that Man U trade as an example, I didn't really expect that trade to win - but was convinced that a movement of odds in my favour was very likely. The point being that by being nearly right, or not quite wrong, I was able to profit with a fairly minimal downside had I been totally wrong. Obviously at some point I made a call about the risk / reward involved, but probably would still have entered the trade at higher odds - because, in my opinion, City were not going to just lie down and take it!
Similar trades that I have entered have had both outcomes - and in some cases I've taken a full loss or a full profit and in others smaller greens and smaller reds. How many, at what odds and with what strike rate I couldn't tell you and obviously it's the winners that you tend to remember.
I've no doubt that my thinking on this subject is somewhat confused - in a way I think I try to pick trades at good values but which I think have a good chance of working for me. If I haven't that faith the odds on offer don't interest me and I leave it alone - value or not!
Perhaps my real problem is that want to have my cake and eat it! To seek out value and pick winners!
Probably a good job I don't have to pay the household bills by trading ,eh?
Surely a person's opinion is factored into what they believe is a value price? If you thought that Leeds were going to win that game following Gary Speed's death (against my team Forest, who I saw at the time were a value lay for this very reason) then that is a classic example of using your opinion (based on knowledge of the game) to pick out value.
ReplyDeleteI think there are 'system' traders out there who think everything has to be worked out on a strict mathematical, infelxible principle, with set trigger points and tables and stats coming out of your ears but in my opinion (and that of experienced traders who have written books) that is not true.
Check out 'Trading with Your Gut' by Curtis Faith. I've mentioned this on my blog in the past and it shows how trading styles stretch on a continuum between instinctive 'discretionary' traders and pure system traders. Most of us are somewhere inbetween and to say that 'opinion' should be ignored is rubbish - in my opinion ;)
It all depends on what you are comfortable with as an individual - there is no right or wrong, as long as you end up picking out value, which you clearly seem to know how to do, despite all you've written in recent times ;)
ReplyDeleteI'm inclined to agree with 'The Sultan', I was actually going to craft a reply similar to that myself. I think it's all very well banging on about data, statistics and what not, but it all comes down to what actually happens on the day, of course stats are important and should always be at the very least considered before doing anything. A number of different systems certainly helps as well.
ReplyDeleteHowever, sometimes local knowledge is important. If your local team is playing (eg Leeds) and an important event happens to them (like the death of Gary Speed), but (it isn't general knowledge) then you will have an edge over the next man and be able to trade an advantage with it. Gut instinct also helps a little bit with this as well.
I haven't had the chance to read 'Trading with your gut' but will certainly check it out. I definitely think that you have to have some flexibility when you place a trade, and shouldn't just rely on the systems you use, although they are helpful.
Then again, what do I know. I m not exactly 'Mr Success' at present with this!
I should just add, I don't mean to denigrate 'system' traders. But what I don't like is when that type of trader tries to suggest that this is the only way to trade successfully - it's not.
ReplyDeleteMy trading has significantly improved since I stopped trying to force myself to stick to rigid entry and exit points, which didn't suit my personality. Now, I trade with much more discretion, instinct and flexibility and I not only am doing better, I enjoy trading more.
Of course, it's only good to go with this style if you have enough knowledge and experience of the markets and the sport.
Nothing wrong with trying to pick winners, as long the odds you take represents value.
ReplyDeleteFrom a traders perspective I guess you are interested in a steady cashflow. Only way to get that is to get winners frequently. But if your odds do not represent value your bank will shrink long term.
Valuehunting with high odds and low probability requires a lot of patience and a good money management system. That makes it less interesting for most traders even if higher value is to be found here.
Hope this helps!
Great post as usual to continue the debate!
ReplyDeleteI think I probably made my point quite badly, but it seems that what you are doing is finding value using your in depth knowledge of the game.
What you are doing, is using various systems that are in your head and that are very complex. What must be understood is that all of these CAN be modelled mathematically but the point is that it's just bloody hard to do so.
Take your Leeds game example with "off the fields events" possibly effecting the outcome of the game, there is nothing to say you cannot define a system which takes such events and creates a "numbered weighting" in the model to determine the probability of an outcome.
Lets not forget that the price of an event on BF (or a bookmaker) is determined by many people coming do an agreement on the probability of the event occurring from their statistical modelling of data. Value is found where you can determine a more accurately (i.e. your model includes a weighting for off the fields events -crude example).
My point is you do this already you have a good brain and good knowledge of the game and apply this to different models you devise in your head, but without being able to define these mathematically on paper, its hard to recreate this match after match time after time.
Sorry to ramble again, but with regard to your comparison between "value punting" and trading, lets be clear that if you don't find a value price you will loose in the long run, trading OR punting...
The price in a betting exchange moves to adjust as it becomes clear that the initial price is no longer the correct probability of the event occurring, so initially, you had (or haddnt) found value
Wow! What an interesting set of thoughts. So much of what I was getting myself confused about is slowly becoming clearer, but the overwhelming conclusion I'm drawn toward is that I'm almost doing it right :-)
ReplyDeleteThe more I reflect on my trading habits and this value / opinion / tra-punting debate the more convinced I'm becoming that the main key, for my style anyway, harps back to the point Cassini made in his interview with Sultan... about staying in losing trades for too long and getting out of winning situations too soon. That is where my focus is going to be hereon in.