The Crystal Ball method of Trading

[firlandsfarm]

I think this is this is the most suitable section to post this and my title is influenced by not knowing what it should be so please bear with me and don't be disappointed if this is not what you thought it may be about. I just want to try and understand a little more about how trading decisions are made in the in-running markets of Football, Cricket and Tennis.

I don't trade and part of the reason is the time needed not just to learn how to but also the time to actually do it. As an ex financial man who still dabbles privately with financial markets sports trading does have a certain attraction but I can only associate sports trading pre-off with financial trading. In running trading is completely different in that when assessing an event in-running you are guaranteed 'something' will happen to influence the market whereas pre-off it may happen, it's much more unlikely. There are degrees of volatility attached to different sports in-running I would like to call them Macro and Micro volatility. I am defining Macro volatility as the general trend towards the result. It is the way Football odds trend until a goal is scored, Cricket until a wicket falls and Tennis until a break of serve occurs. When one of these things happens there is a sudden bout of Micro volatility until the price settles again and Macro volatility takes over again. OK, you may not agree with my terminology but you get the picture, yes.

My understanding is that Traders in these sports in-running basically trade the Macro volatility (again, please tell me if I'm wrong). I would like to understand how you manage the threat of the Micro volatility when a goal is scored, a wicket falls or a serve is broken. Micro volatility can work in favour of your position or against it but you can't predict if the next ball bowled will result in a wicket or that attack will score a goal. I suppose in Tennis it's not quite as sudden as the points build to a break but it's still unpredictable and I assume the market you are trading will have built the likelihood of a break into the prices. Is it just a matter of luck/bad luck when a Micro volatility moment hits your position and fingers crossed?

[Euler]

When trading you are effectively selling volatility, not buying it.

Most trading systems and methods I see being actively pushed try to work against that, which is why they fail long term.

[firlandsfarm]

I appreciate that Euler but I am asking around the happening of the trigger for the volatility ... you take a view that England are in a good position today but Australia pick up 2 wickets in the first over and it's all change ... that's a bad luck call not an expectation so how do you manage that reversal.

[SweetLyrics]

When trading you are effectively selling volatility, not buying it.

Interesting.

I'm not sure what that means. Can you elaborate please?

[rik]

nobody knows for sure when the next goal, wicket or break of serve its all a matter of percentages
if you decide to open a trade you should put a percentage on the likelihood of the "macro" event going to happen and you should be able to predict the price movement for both the event to happen or not to happen as accurately as possible
say you feel a football game is played in a very careful manner and you think goals arent very likely.
at some point in the second half odds should be evens (50% implied chance), estimate for example how long it will take for odds to move to 1.33 (75%chance) than estimate how much you would lose in case of a goal. Simple if you back the Under 0,5 (lose everything) otherwise have to estimate where the price will move again.
Say you estimate it will take 10 minutes to gain the 25%, in case of goal you lose 50%, you should only back if you think there is less than 33% chance of a goal in the next 10 minutes...
same goes for tennis, estimate where price will move after a break or service hold, put a percentage on the event to happen, back or lay according to that..

if that sounds too risky for you maybe try scalping/market making

[firlandsfarm]

Thanks rik ... it's not the risk issue it's how do you 'calculate' /evaluate all those estimates!

[rik]

experience. if you cant put a percentage on an event happening and work out if the percentage is bigger than implied probability given by the odds or price change if trading i doubt its possible to be long term profitable

[Derek27]

I would like to understand how you manage the threat of the Micro volatility when a goal is scored, a wicket falls or a serve is broken.

The same way a successful gambler manages when a straight bet loses - you just take it on the chin and trust that that sort of bet will be profitable long term.

Gambling has nothing to do with predicting the outcome of events. It's all about predicting the probability of an event occurring, if you can do that then you know what price will be in your favour. Trading is exactly the same, except you're comparing how far the trade can go for or against you with the likelihood of each move.

If you struggle to understand how a trader manages when a serve is broken (which actually works in you're favour if you've laid the server), do a search for Dallas's tutorial on how to use the Bet Angel tennis trader. Whether you use it or not it will explain how to find value in a tennis match to minimal risk, so you can just accept your losses, after closing trade of course.

[ShaunWhite]

When trading you are effectively selling volatility, not buying it.

Interesting.

I'm not sure what that means. Can you elaborate please?

Took the words right out of my mouth. I've seen that said before but now someone else admits to not understanding I'll raise my hand and say I don't either. Surely buy or sell, either way you're exposed?

I'm also totally aware that it's all about chance an event will happen vs the likely up/down in price. But I find it hard to see situations where the market corrections aren't already as they should be. Nadal might go (say) 1.1 or 1.4 when he's serving and it's 1.33 now, but that seems to correlate with the likelihood of him winning or losing that point. If it was 1.1 and 1.8 and I see the angle.

[firlandsfarm]

I've seen that said before but now someone else admits to not understanding I'll raise my hand and say I don't either. Surely buy or sell, either way you're exposed?

I've not seen it said before so can I be hand number 3 for a clarification.

I'm also totally aware that it's all about chance an event will happen vs the likely up/down in price. But I find it hard to see situations where the market corrections aren't already as they should be. Nadal might go (say) 1.1 or 1.4 when he's serving and it's 1.33 now, but that seems to correlate with the likelihood of him winning or losing that point. If it was 1.1 and 1.8 and I see the angle.

I think that's what I was trying to say with my Tennis point "as the points build to a break … I assume the market you are trading will have built the likelihood of a break into the prices" so again no value unless the Market has it wrongly priced. If you think it has priced it wrong you are then challenging The Wisdom of a Crowd!

[ShaunWhite]

If you think it has priced it wrong you are then challenging The Wisdom of a Crowd!

And challenging the wisdom of syndicates full of sports nerds and PhDs running ultra complex game modeling software taking any available value in the blink of an eye. (Plus the Peter's and the Dallas's and the riks etc). Imo if I or Tennis Mystic thinks a dropped point should make a player 1.5 and the market is 1.6, then 1.6 is right and I don't have the confidence to dispute that.

[henbet22]

Hi Shaun. 7/10 times you should be backing Nadal at 1.33.... hope that helps...!

[Derek27]

If you think it has priced it wrong you are then challenging The Wisdom of a Crowd!

Since when has the crowd had any wisdom?

Anyone who trades a variety of markets will come up against some very tight, efficient markets (such as Premiership football), but also some completely bonker markets where horses bounce between 6 and 10. Don't overestimate the wisdom of the crowd.

[Derek27]

Gamblers buy volatility, traders sell it. Simple as.

I'm not sure what it means either?

[firlandsfarm]

Since when has the crowd had any wisdom?

Aristotle

Don't overestimate the wisdom of the crowd.

It was a bit tongue in cheek!