Friday, 4 June 2010

Sounds Simple

Brian Bee asked:

Will you be doing a post explaining how you approach trading on the American sports? Do you simply lay a low priced team that you think will lengthen?
If by "simply lay a low priced team that you think will lengthen" you mean "back or lay at a price that is value" the answer is yes, but despite what Anonymous might think, there is nothing simple about it.

Plus, it's important to understand that whether a team is “low priced” or “high priced” is relative. If the probability of an event is .95 and the price is 1.1, then 1.1 is high priced and a value back. If the probability is .8, then 1.1 is low priced and a value lay.

I can’t speak for all traders, since we all have our own styles, but when trading, any sport or event, and it makes no difference if it is a US sport, an Australian sport, or a Jovian sport for that matter, I look for a price that is ‘wrong’. Since most of the markets are short-term, the problem of the price moving sideways is not usually encountered, so I take a position (my entry point) when I am confident that the price will at some point move in my favour. The exit point is when I feel that any value is exhausted.

The ‘buy low, sell high’ axiom has been known to traders for centuries, and while at first sight it appears to be a solid piece of investment advice, it is actually just noise. Let’s be polite and call it ‘stating the obvious'. Something along the lines of the recent “stay hydrated” advice us lesser traders were recently given.

The key is, of course, market timing, and all traders and all sports markets are different. The only advice I would presume to offer is to tell you to put in the time to study how the markets you are interested in move. Understanding ‘buy low, sell high’ is the easy part. Even Anonymous seems to have mastered that much, but learning ‘how’ is the hard part, and putting in the time to learn is crucial.

My apprenticeship on the exchanges was a little under two years during which time my balance waxed and waned as I tried different methods.

Doubtless many people have found an edge a lot sooner than the 21 months it took me, but a lot more either take longer than two years or never find one. And then of course edges can disappear, so you need to have more than one string to your bow, especially if you are full-time, or your best sports are seasonal.

Be aware that if you have uncovered an edge, it’s unlikely that you are the only one to do so, or will remain the only one. The popular markets, horse racing and football for example, are big ponds, and most of us are small fish. It seemed to me that in the big ponds I would soon get wiped out, so I focused my attentions in the smaller ponds. Even the small ponds can be dangerous waters at times, but a little specialised knowledge, both of the sport and the market, goes a long way.

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