Horses For Courses

I'm not sure if Google's new privacy policy is to blame for the recent flood of comments to my Spam folder, but at least now that I am aware of it I can monitor and release any I find for general viewing. (Others have had a similar problem, and PT suggested that the XX Draw e-mail was going astray because the XX suggested porn related content!) The latest was a long comment from Alfred on pre-off horse race trading, and I am pleased to include it in full here:

As much as I like to read your blog and your rant against gamblers-who-call-themselves-traders, I find it disconcerting that you can’t grasp the difference between what you do (whether you call it sport trading of value betting and edging) and pre-race horse racing trading. Here i’m not talking about form analysis and punting, but of trading on a market with fluctuation of prices and quantities which have nothing to do with what is happening in the event, because it is the nature of prerace trading that nothing (well, very little) is happening. When you do that, you are not looking for value because you are not having an opinion about the qualities of a horse and its probability of winning the race. You don’t even have to know the name of the horses (or as someone has put it more prosaically, you don’t need to know the head from the arse of a horse). The edge only comes from the capacity to read the market and its evolution. You can back a horse at odds of 3.00 and lay it seconds later at 2.8 and, later (but always before the race and before anything has happened), lay the same horse at odds of 2.3 and back it at 2.5. There is no contradiction in backing the horse at 2.5 and laying it at 2.8 because “value” is not part of the analysis. You’re not making your trading decisions based on the probability of a horse to win or because you have “inside information”, but rather based on an evaluation of the market dynamic and its evolution. I’m not saying that it is easy, as most of those who try will fail, but it is very well possible to succeed in doing that.

But surely you already know all that? Don’t you? And that’s the main reproach I have to make about your blog. You seem to write those things about horse racing only to be pedantic (your recent comments on Caan Berry’s blog are examples of that in my opinion). You must know that there are several horse racing traders who are successful at it and even do it for a living. You must be aware of the numerous betfair softwares and the communities of pre-race and in-play horse racing traders hanging around their forums.

And talking of software, I recall that you don’t use any. Do yourself a favor, go get one and try trading NBA games on the ladder interface with automated edging calculation. I can’t see one good reason not to use one (and stubbornness is certainly not one of them).

Apart from that, I really like your blog. Keep up the good work.

My basic problem with horse-racing is that, in my opinion, it is a bit like the stock market. Plenty of money and 'opportunities' around to seduce us, but with the scales tipped in favour of insiders. Trading the horse-racing markets pre-off seems similar to me to day-trading shares, and most studies into the latter show that long-term,

day trading has exceptionally high "washout rates" and "regulators who have examined the books of day-trading firms say that more than 9 out of 10 traders wind up losing money. Because most of these people disappear quietly when their cash runs out, few who replace them in the trading rooms know about them or their failures."

Are there day-traders who make a profit long-term? Quite possibly, but they are certainly few and far between, and I see a similar situation in the pre-off horse-racing markets. As you should be aware, I do not know much about these markets at all, but what I read suggests that there are a lot of people who all think they have an edge, and my main point is that the majority of these people are deluding themselves. A technical edge based on 'market dynamics' is apparent to all who are looking for it - overbought or oversold signals for example - and the greater fool theory may work most of the time, but long-term, no. I absolutely do not "know that there are several horse racing traders who are successful at it and even do it for a living". That may be true, but I don't frequent the horse-racing forum, and I am struggling to think of one trader for whom this is true. In fact, all the profitable traders I am aware of are profitable in other sports, suggesting that the edge you need to be profitable is far more likely to be found away from the racecourse.

Alfred says that I "can’t grasp the difference between what you do (whether you call it sport trading of value betting and edging) and pre-race horse racing trading." The difference is that the edges I find are real, based on being able to accurately price up an event (a lot easier in a two or three winner market than a horse-race incidentally). Backing a horse at 3.0 hoping to lay at 2.8 without understanding what the true price should be, even if the 'technical indicators' are that the price has a good chance of dropping to 2.8, seems like gambling to me, if that horse's true price is 3.2. Sooner or later, the greater fool you need will not be there.

A healthy difference of opinion, and I welcome other views on this, in particular how trading without an opinion on value can be profitable long-term.

For the typical retail investor, day trading isn't investing, it's gambling. If you want to gamble, go to Las Vegas; the food is better.

Philip A. Feigin in "Day Trading Craze Should Give Investors Pause".