At long last - something that I can really get my teeth into.
Before I start, I would like to state that I am a straight layer and I rarely trade. However, the principles below should still apply.
Regardless of whether one trades, backs or lays, sometimes you will win and sometimes you will lose WITH A GIVEN STRATEGY. This gives rise to a strike rate. The strike rate (for newbies) = number of winning bets divided by total number of bets placed.
This will give rise to a theoretical longest losing run (LLR) that one is likely to encounter.
The LLR is given by log (number of bets placed) divided by minus log (1 - the strike rate).
For example, if 100 bets have been placed and the strike rate is 0.8, then the LLR = log(100)/-log(1 - 0.8) = 2.86.
Please note that it doesn't matter whether log to base 10 or natural logs are used as long as you are consistent.
Please also note that the strike rate in the above formula is quoted in decimal rather than in percentage form i.e. 0.8 as opposed to 80%.
So, if we place 100 bets using a system with a strike rate of 80%, we will encounter a max. LLR of 2.86. Let's round up the LLR to 3. Therefore, in theory, if we allocate one third of our betting bank to each bet, when we encounter the LLR, we will completely lose our bank. Therefore, we must allocate less than one third of our betting bank to each bet so that when we encounter our LLR, we will still have funds left in our bank with which to recover our losses.
OK, that's the theoretical world dealt with. Now to the real world.
The actual LLR that you are likely to encounter is likely to be greater than the theoretical one.
Why?
For brevity's sake, and this post is quite long enough, let's just say that it is due to probabilities and margins of errors and leave it at that.
But that's not the end of the story.
It isn't just the LLR that can decimate a bank. A number of losing runs which are shorter than the LLR but which occur close together can do far more damage to the bank than encountering the LLR.
To mitigate this, we must multiply the LLR by a factor. That factor reflects the belief that you have in the system and how much risk you are willing to accept. The more faith in the system that you have and the more risk you are willing to take, the lower the factor. The less faith that you have in the system and the less risk that you are willing to accept, the greater the factor.
I use a modular laying system. Some modules, I really trust. However, there are other modules that I have less trust in due to the low numbers of bets placed due to their low frequency.
With the trusted modules, I use a factor of 2. With the less trusted modules I use a factor of 3 or 4, depending on which module I am using.
So, if I am using a trusted module, I divide my betting bank by the LLR multiplied by 2. For example, if the LLR = 4, I divide my betting bank by 2 x 4 = 8. This gives me my bet liability. To calculate by laying stake, I divided my liability by the betfair odds - 1. So, if the betfair odds are 4.0, my stake is betting bank divided by (4 x 2 x (4 - 1)) = betting bank divided by 24.
If I am using the least-trusted module, I divide my betting bank by the LLR multiplied by 4. For example, if the LLR = 5, I divide my betting bank by 5 x 4 = 20. This gives me my bet liability. To calculate by laying stake, I divided my liability by the betfair odds - 1. So, if the betfair odds are 3.0, my stake is betting bank divided by (5 x 4 x (3 - 1)) = betting bank divided by 40.
Please note that as the number of bets that you have placed increases, so does the LLR. This is a fact that a lot of people fail to realise and is one of the main reasons why most people lose long term.
Please also note that different strategies may have different LLR's due to the different strike rates and number of bets placed. Therefore, for example, if you use 3 different systems, you will need to calculate 3 different LLR's.
Psycho
