Saturday 11 June 2011

Anatomy Of A Trade IMO

Average Guy had a comment that is worth discussing further:

Hello, respect your thoughts but referring the basketball trade that nearly went very wrong. Are you really trading if you only get out when it suits you with a profit but do not accept a substantial loss ? Not questioning your logic as you are obviously successful but what's the difference between a blind punt and what you did ? I need to rationalize this as I do it constantly and feel like crap as I watch the losses double or treble because of an inability to cut and run ?
Ignoring that in my experience, when someone says "With all due respect" or "I respect your thoughts" what they really mean is "I think you're an idiot", it's a good question.

First of all, I was in and out of that market several times before that lay at 1.69, all trades that were exited when the value was to do so (in my opinion). I have no doubt that I am a trader rather than a punter although on occasion I will let my trades run, or add to a position, if it is value (in my opinion) to do so. Looking at the details in My Account, prior to laying Dallas at 1.69, I had layed them at 1.74, 1.72, 1.67 and 1.96, with lays of Miami at prices ranging from 1.68 to 2.38.

Secondly, I do not "only get out when it suits [me] with a profit". At one point in the first-half I was green on both sides to the tune of around £400, (thinking "this is easy") but by half-time, I was down to around just £50 on each side. I took the losses because the value was gone, and it was the right decision to 'cut and run'.

Thirdly, and specifically with the lay of Dallas at 1.69, this was a position entered in the second half of a game, and I believe it is true that Dallas never led by more than 7 until late on in the game after Miami had closed the gap, gone odds-on and I had closed out my position. In my opinion, it was never value to close out, and in fact I added to my position by laying an additional £1,886 at 1.46 16 minutes later, and 13 minutes after that, a little more at 1.32. It was my opinion that, as is often the case in a close basketball game, the prices available were value lays, not backs.

I've used the term "in my opinion" several times in this post, and for a reason. Betting odds are not exact probabilities in the same way that the outcome of throwing a die or tossing a coin are. They are the result of opinions. If your opinion is right more than it is wrong, then you will come out ahead in the long run. My opinion will not always be correct, at least not when it comes to betting, but it would be wrong for me to have 'cut and run' for a big loss if it wasn't value to do so - in my opinion. It's a spin on the "should I green up at 1.01 or let the bet run" issue. Assuming you are not over-staked, then you lay at 1.01 if it is value to do so, not just because you can.

I don't like big losses, but the occasional big hit is unavoidable. Fortunately the more frequent wins mean that the trend is upwards, and it's only when the trend becomes downward that you need to re-consider your strategy. Some might argue that you should always have a stop-loss in mind when entering a position. I don't agree, at least not for sports where the prices can move fast. What price should my stop-loss be? A stop-loss for the sake of it doesn't make sense. The game-state is constantly changing, as are the prices. Backing back at say, 1.5 might be value if Dallas are up by 20 (excellent value in fact, and used for illustrative purposes only), but would be terrible value if they were down by 20 (bear with me, I'm trying to make my point). What if Dallas are up by 10? Would 1.5 be value then? Well, it might be, but it might not. How much time remains? What is the foul situation? Any key injuries?

The fact is, I never felt that backing Dallas at the prices available, given the state of the game, was value. Experience gives you the confidence to put your money where your mouth is, and means that even if you lose, you're OK with it because you made the right decisions.

A good comment though, and while it's not good to take a big loss, it's far worse to take a big loss when it is not value to do so, and then watch as your initial opinion is proved correct and the price comes roaring back. If you stake sensibly, you should be able to make the correct decision. It's when you are over-staked that panic sets in and you close out a position in desperation. Fear and greed drive the markets remember. To quote Warren Buffett "Be fearful when others are greedy and greedy when others are fearful".


AL said...

Great post! You even managed to bring in Buffett! Nice :-)

Unknown said...

That is one of the best posts I have read on a blog for a long time. I have c+p'd it and will read it again and again.

With the greatest of respect.................................................Nuff respect :-)

Anonymous said...

Hi Cassini,

I've really enjoyed reading your blog. I wondered if you would be interested in exchanging links. I have just started writing about my attempt to grow a bank of £200 through place betting on horses, using Kelly staking. Any input you may have to the blog would be genuinely appreciated, as you clearly know your stuff.

Thanks, Joe.

Average Guy said...

"Ignoring that in my experience, when someone says "With all due respect" or "I respect your thoughts" what they really mean is "I think you're an idiot", it's a good question."

This is the exception that proves the rule. Your reply proves why I do actually seek your opinion, us learners require enlightenement and where better to get it ?

Cassini said...

Average Guy: My opening comment applies to me probably more than anyone else. I wasn't picking on you!