Webbgate

While no one stopped by to say they made money from my Lakers tip on Sunday night, I did have a couple of comments. First was:

Hi Cassini!

I also find basketball almost the perfect sport for trading and was wondering, do you also trade EuroLeague games or only NBA games? From my experience the level of competition in EuroLeague is no worse than in many NBA games and there is also good liquidity on these games.

BR

Grega

Almost the perfect sport? Do tell which sport is the perfect sport for trading. Not much has changed since I wrote in 2011:

I do occasionally watch/trade Euroleague, but the NBA is just better for both activities. Playing in NBA stadiums, with NBA rules and officials, NBA teams are 27-2 v Euroleague teams, and 36-7 overall so there's no debate about the quality. And English is my first language - far gooder than my Turkish, Russian, Greek, Polish, Croatian, Israelish, Serbian, Lithuanian and Slovenian.

The best players still play in the NBA, and once you get used to the NBA, switching to the Euroleague is a little like heading down to Fratton Park after you have been used to watching Crystal Palace for all your life. Well, kind of. 

And then a visit from the great man himself, Peter Webb, who commenting on my provocative 'in this particular match you should have struggled to lose money if you were trading'. Surely no one has missed the Webbgate controversy?

Peter wrote: 

TBH Cassini, I'm surprised that people are getting upset at the suggestion that if you back or lay something in a two selection market, you can profit if the lead changes hand. A fairly simple observation I would have thought and not particularly controversial, or that's what I thought at the time.

I can see the appeal of all two selection markets. But with its potentially unlimited length, Tennis is my favoured market.

I think that the reason for any upset was the statement from Peter which actually ignited this 'controversy' was actually a little different to saying that you 'can' profit if the lead changes hand. (You don't even need lead changes to profit in a two selection market incidentally). Specifically, the comment was this:

"So in this particular match you should have struggled to lose money if you were trading. This was purely on the basis of the very large number of opportunities to profit or exit for no loss, a direct function of a competitive match playing out over a long time period." 

It's very easy in hindsight to say how perfect a game was for trading if it meshed with your trading style, and you called your entry and exit points almost perfectly, but there would have been plenty of losing traders in the game in question (Kvitova v Robson) who didn't read the game well, and who found it all too easy to lose money.

The suggestion that the match playing out over a long period is a huge benefit to traders is true, but also rather after the fact. Yes, if we knew that the game would go to a lengthy deciding set from the start, we would adjust our strategies, but we don't know that. In fact, arguably tennis is a poor sport to trade in this regard, because matches can be short, and in the case of injuries, very short. At least with team sports, you know as a trader how long you have to work with, and sometimes you get a few more minutes thrown in with overtime.

So back to tennis, and a trader who sees the favourite start poorly decides that from an SP of 1.05 the 1.2 now available is value, only to see the price drift out to 1.4. They red out at this price, and then see the price come in again. The favourite appears to have recovered, but if they stay out, they are a loser, and so they go in again at 1.2 confident that this time they have got it right, only to see the favourite stumble again and the price then move out to 1.5. Rinse and repeat... It's not as simple as choose your entry point and wait, because the art of trading is to cut your losses short and let the winners run, not the other way around which is just gambling. In fact most traders in my example would probably have cut their losses before 1.4 or 1.5 was reached if possible.

I think the concern was that you [Peter] have a vested interest in promoting the idea that successful trading is easier than it really is, and that your statement was open to misinterpretation. I'm hoping that not too many people quit their jobs after reading your post.

FTSE 100 (5 Years)

The example I gave reminds me of what actually happens time and again in the rather longer term stock market. People get in just as they should be getting out, and get out just when they should be staying in. As is happening right now, shares are on a roll, and money from the unwashed massed is starting to pour into the stock market again. After taking a beating back in 2008, and cutting their losses, many people have stayed on the sidelines for years, missing the upward move that the markets have made in the intervening four years. But fingers burned in 2008 are healed now, and memories are short. People love a bubble, (the Madness of Crowds), they always have, but unfortunately bubbles have a tendency to burst.

From the USA:

The big gains seem to have caught the attention of Main Street investors, many of whom have turned ultra-defensive with their investments since the 2008 financial crisis and sought comfort in more conservative, yet lower-yielding investments, such as cash and U.S. Treasury bonds.

The latest weekly sentiment survey released by the American Association of Individual Investors found 52.3% of investors were bullish, the highest reading since January 2011. A closely watched Wall Street "fear gauge" is trading at its lowest level since April 2007.

The combination of falling fear and rising bullishness has translated into retail investors putting some money to work in U.S. stock funds, after consistently yanking money out of these funds since the 2008 financial crisis. In the past two weeks, domestic stock mutual funds have enjoyed cash inflows of $11.3 billion, the best two weeks since April 2000, says fund-tracker Lipper.

For the record, I am not suggesting anyone quits the stock market any time soon. Far from it. My point is that if you were in prior to 2008, you should have stayed in, and continued to invest, and ridden the escalator up in those four plus years. From 3530 to 6339 is a huge jump that I know many people missed out on because they became disillusioned and gave up with shares. Until now.