Thursday 15 October 2015

Measuring Up - Is This Just Fantasy?

Green Is The New Black, aka Unknown Trader, commented (via Twitter) on my Time - The Hidden Cost post saying:

Nice post, IMO there is no better measure of a trader's performance than Profit or Loss/hour for a meaningful period of time.
The problem I have with using Profit and Loss as a measure is that a pound is worth far more to a pauper than to a prince. It's a lot easier to make £10 an hour from trading with a bank of a thousand times that and a seven figure net worth than it is if you are unemployed and unemployable, with a net worth of peanuts and a bank of £100.

That's one reason why I don't like P and L blogs - they have no context. A profit (or a loss) on its own is meaningless, and even more meaningless when there's no clarification on the time consumed.

As a measure of pure trading ability, I stand by my assertion from last September that the best traders are those whose average win size is the same as, or greater, than his average loss size.  Some esteemed traders offered their numbers, and the average win size from the informal survey seemed to be in the 80% to 90% range of the average loss. Bayes, well known to the Betfair Forum, wrote:
In tennis, my main trading sport, I win in about 60-65% of markets and my average win to average loss ratio is very close to 1. Four or five years ago this ratio would have been nearer 0.8 but I am much better nowadays at staying 'at market'.
Mark Iverson's Cricket numbers were a very impressive 0.997 (Ave Win: £230.85, Ave Loss: £231.59). My own NFL numbers were not (0.729) but the NBA was better at 0.874.

Moving on, and as predicted here last week, the FBI are now investigating the Fantasy Sports business in the USA.
The New York Attorney General’s office has asked both companies for a raft of internal data including the win/loss records of players, algorithms that determine the fantasy pricing for athletes and details on their policies to prevent fraud.
This article specifically mentions the issue of insiders trading:
DraftKings, as well as rival FanDuel, have acknowledged that their employees — many of whom regularly rank among the most consistent big winners — have played and won significant money on each other’s sites. In the wake of the scandal, they banned their employees from competing in any contests.
Don't hold your breath that the Gambling Commission will be asking the same of Betfair any time soon, but the pressure may be heating up - someone is certainly carrying out some interesting research:
Betfair viewed every extra bet as good business. They would stop people having $10 from New York on a new account, but super-courtsiding boss Jonathan Gale has fired in billions of dollars worth and been waved through.
A billion here, a billion there, and pretty soon you're talking about real money - Everett Dirksen


Megarain said...

Your Blog continues to provide insight/thought provoking analysis.

We are all busy, gambling, but, the DFS saga, has peaked my interest, in that it seems the DFS win, by Artem Genchanok, was bet from Louisiana, - one of 5 states, that specifically prohibit, 'gambling by computer'.

I am v interested, how this pans out ..

I do feel, with all the Federal involvement, Sports Betting, may be legal, in far more States, within - say 3 yrs, than I had previously thought.

Unknown said...

I tend to agree with you on the use of P&L in blogs and that's why I commited myself on never using it in my own.

Nonetheless, if you compute a P&L/hour over a long time period (years or thousands of markets) some issues like initial bank size will be diluted. As so, a trading edge will take care of an initial small trading bank while the opposite situation also stands true: a huge trading bank will be gone if you don't have it. Either way, the inclusion of a time measure is very important when evaluating trading outcomes.

About your measure, I think a win/loss ratio of 1 is a good rule of thumb, but there are a lot of ways to go to Rome which I don't categorize as better or worse. In fact, they are better or worse when it comes to Betfair Premium Charge, but that's another subject! The numbers you stated in your post are pretty impressive and maybe I'm wrong here but I think you could find similarly impressive ones from traders with diferent ratios, higher or lower. In the end, each to its own I guess!

Keep up the good work, it's great that you're more active again in your blog! By the way, your feedback (good or bad) on my blog would be highly valued, hope you get the chance to read it.

The Investor said...

The problem with PnL/hour for me as a useful metric for my own trading is that my PnL is extremely dependent on liquidity. So if Betfair bet volume doubled or halved it would massively affect my PnL given no change in skill (relative to other traders). I know my average margin is x% and it is fairly steady across bands of liquidity, so given expected turnover of y, I can work out what I expect a football match is worth to me. So I use it more before trading than looking at it after the fact.

As for avg win size vs average loss size, it probably will be the case that the best traders have a good ratio (I remember something like this being mentioned in market wizards as well), but it won't hold true all the time.

My favourite measures are margin on turnover (normalised to make a £100 back at 1.1 and a £10 lay at 11 equivalent), and share of market matched.