Tuesday, 15 February 2011

Casino Trading


Aside from the obvious physical benefits, running is also a wonderful way to free up the mind and let it wander. As is often the case, my thoughts today turned to investing, specifically strategies for beating the Premium Charge and the perennial debate over "Should You Get Out While You Can When Trading".

The answer to the latter is "No", if the only reason to do so is because "You Can". Just because "You Can" do something, doesn't mean that you should, that it is right, or that it makes sense to do so.

The easiest thing in trading is to find a trending market, ride the move for a tick or two, and jump off. But is that strategy going to make you money in the long-term?

Think of the Under / Over x goals markets. It's a given that so long as there are no goals and no one is sent off, the under price will contract and the over price will expand. Rocket science it is not.

At any time you can jump on, wait a few seconds or minutes, and you can jump off again with a high probability that you will have made a tick or two of profit.

Does it make sense to do this? It's a bit like playing in the casino. Do it one-time, and you have a good chance of walking away with a profit, but do it repeatedly, and successful trading doesn't usually mean a one-off trade, and you're not going to come out ahead. Sooner or later, that inevitable goal comes, and all your small tick profits are gone. And more.

The point is that you need to have an entry point and an exit point. You enter a market when it is value to do so, and you exit a market when it is value to do so. You may be able to lay-off at 1.01, but if the true probability is 0.001, why would you want to give that value away to someone else? If you need the 'insurance' then you are guilty of over-staking. If you need to free up the funds for something else then you are guilty of over-staking. If it's a life-changing amount, then I concede that losing a little value is acceptable, but I doubt that is the case too often.

If you backed Crawley Town to win the FA Cup at 1000 (bad value in the first place if you did, but bear with me), I doubt that you would wait until they took a 4-0 lead in the Final before considering locking in some profits.

2 comments:

HCE said...

Hi Cassini,

It is an interesting subject.I think it comes down to the individual and what you are looking for. In an ideal world we would make a decision based on value. But perhaps as an insurance policy it is worth laying a bet at short odds to guarantee the same winnings. The reason I say that is so much of gambling is about confidence and in the short term laying a bet - where possible - can keep you on an upward curve. I can imagine many people would think this is wrong. But who is to say what is value or not. It is subjective and what works for one person doesn't for another. I have had a few bets with the potential to win 1,000+ (generally speculative priced two-year-olds) which have touch 1.03 or so in-running and lost. I have looked back on those moments (and I know we all do after the event) and thoughts it must be bordering on madness to have not made good money from such an opportunity - let alone lost my stake. The effect of such a near miss can affect confidence and for that reason I do think their is some merit in laying a bet at short odds.

Regards,
Jason

Steve said...

> You enter a market when it is value to do so, and you exit a market when it is value to do so. You may be able to lay-off at 1.01, but if the true probability is 0.001, why would you want to give that value away to someone else?

because your "true price" has a standard deviation just like everything else in life.