Wednesday, 11 November 2009

Never Say Always

"No one can win long term backing odds on it's just common sense. Gambling is always for mugs and trading is the only way you can ever make money."
So went the first comment to yesterday's post. I thought I had explained as clearly as possible that the laws of mathematics do not suddenly stop working at evens (2.0) but apparently my explanation was still too complex for some.

Some facts. You can certainly win long term backing odds-on. It is not common sense to think otherwise. If it was common sense, wouldn't we all be laying odds-on for guaranteed profits? Why does it make sense to think that you can win long term backing at 2/1 but that you can't at 1/2? If your strike rate at 2/1 is 30% and your strike rate at 1/2 is 70%, betting at which odds would provide the best return?

Another comment mentioned the importance of a good staking plan, linking to a post which extols the virtue of the Kelly criterion. Here are my thoughts on the subject:

Staking plans can help turn a profitable system into an even more profitable system. What they cannot do is turn a losing system into a profitable system.

The only way to verify whether or not your system is a winning or a losing one is by looking at the results against level stakes.

If your system is a losing one, then no staking plan in the world is going to make it profitable. You might think that a loss-recovery system will overcome the negative expectancy, and it may well do for a while, but ultimately, the laws of probability will catch up with you and the inevitable losing run will finish you off.

A winning system can often be made more profitable by implementing a staking plan. Undoubtedly the best plan is to apply the Kelly criterion which, with mathematics far more complex than I claim to understand, has been proven to maximize profits on investments where you know your edge. Unfortunately in the world of sports betting, your precise edge can be very difficult to calculate. If your system is profitable, then you have an edge, and over time you will have a fairly accurate idea of your average edge, but this is still problematic. In sports markets, and with no access to inside information, it is unlikely that you will regularly have more of an edge than justifies your stake being more than 2% of your bank, and this is a good number to work with until you have enough data to justify changing it.


Rob The Builder said...

Good sense, as your maths-based posts always are!

Regarding your last line, surely 'liability' would be more appropriate than 'stake', whatever the percentage. Say I have a notional £1000 bank, and wish to back Gael Monfils today in Paris at 1.14, whilst monitoring in-play. A 2% stake would allow a £20 bet to win £2.80 less commission. Hardly worth the effort? If I'm happy to bail out if he loses the first set, I'll probably be able to lay at 1.9ish. Therefore my 2% liability would allow a £50 bet, which could be traded out to all-red for £20 if it went pear-shaped.

Obviously, if it's a straight back, my liability is the same as my stake.

The opposite therefore applies to odds-scalping, where a low liability can be set, even if the initial stake is a high proportion of bank.

Cassini said...

Thanks Rob, though do I detect a back-handed compliment there with the "as your math-based posts always are"? It rather suggests the non-math posts are just crap!

I was using stake to mean the amount you are risking, so if you are trading, then your initial 'stake' could well be a lot higher, as mine often is, because if it turns sour, I know I'll be cutting the loss short.