Punt.com - A Blog About Gambling by a Professional Gambler.

Betfair's Tax on Winners.

Unless you've had your head in sand for the last couple of weeks, you'll be aware that Betfair announced that from yesterday, they would begin to levy a new charge on "successful" accounts.  This new "Premium Charge" will, according to their statements, affect 0.5% of the userbase.  For your reference, here are those details I'm sure you are overly-familiar with by now, even if you are presently unaffected, pay attention, because you might be in the future,

"Customers will only be considered for the Premium Charge if, over the previous 60 weeks, they satisfy the following criteria:  

• Account is in profit;
• Total charges paid (commission generated,   Transaction, Data Request and Premium   Charges) are less than 20% of gross profits; and
• Bet in more than 250 markets.

There are two further conditions that are also calculated:

• Any single win that constitutes more than 50% of gross profits over the previous 60 weeks will be excluded from the calculation; and
• Each customer will have a 60 week allowance of £1,000 against the Premium Charge i.e. the customer will not pay the first £1,000 of charges.

Each week the customers who meet all the conditions set out above will be charged the lesser of:

• The difference between 20% of the previous week’s gross profits and the total charges paid during the week; and
• The difference between 20% of the previous 60 weeks’ gross profits and the total charges paid during that period.

Our pricing strategy is changing as from the 22nd of  September. The first Premium Charges will be collected the following week - week commencing 29th September."

A further detail neglected in much of the forum discussion is that on the date of the 29th September, all accounts that have a profit and have traded 250 markets in the last 60 weeks are assumed to have been operating at a level equal to paying 20% of gross profits to Betfair.  If in the first week, the commission you generate falls short of 20% of gross profits, then this will be taxed the following week.  Apparently this doesn't constitute 'back-dating' in the PR world.

Another under publicised fact about this charge is that the 20% figure is now the MINIMUM you will pay Betfair in commission on gross profit.  That's right, it's now not about trying to find ways to get under 20%, but how to make sure you are paying the minimum 20% rather than more!

Betfair are very keen to point out that not many people are affected by this on a weekly basis.  All this means is that if you are not charged, you are already paying above the 20% mark..  Do you feel better about things now you know this? 

I've taken quite some time to put this post together, there's been a lot of messages asking if I'm affected, where's my blog post on it, what's going on??  I had to give time for the dust to settle on this one, it's such a serious topic and a complex one too that it took me a while to calm down enough to begin to understand it.

Yes, I am affected by it.  Due to the up and down nature of how I've been betting and slowly altering strategies, it is difficult to tell just how much this would affect me.  (If you think you might be affected, ask Betfair for a spreadsheet breakdown of your last 60 weeks.)  On current form I believe this will cost me up to 6 figures per year (my last 5 weeks would have cost me an extra £29k !).

This is a good example of where this calculation falls down and is far too unspecific in who it targets.  Lets get into Betfair's reasoning behind the charge and then some definitions that should show why it is so unspecifically greedy.

On Betfair we have a variety of winners, those that win consistently, those that work out a profit on balance.  Over time, winners remove the excess profits they make and carry on using the site.  This money taken out, is never recycled on the site for other people to win, so it leaks away into winners' bank accounts and must be replaced somehow.  This, according to Betfair, costs a lot of money in advertising to attract the required new blood, more in fact, than the amount they are gaining from these winning accounts in commission.

I don't think this can be argued against, this money does get extracted at a fast rate by some users.  In my conversations with other winners we have often wondered where the money actually comes from.  Betfair believe it is their costly advertising that does the leg work in attracting this money, this must be true to some extent.  There's been much conjecture over time about whether it is winners or losers that are the life blood of the exchange, this move settles the argument conclusively in favour of losers.

But what of these costs?  As a chargee, my first (over?) reaction is to tell them to stop spending so much.  Surely this is not just about advertising, it's overheads and it's spending.  The company has expanded at an incredible rate, 1200+ employees, a very nice HQ, innovative technological investments... and also numerous additional mini-sites that few surely find useful.  They have their fingers in many pies.  "Pies" which are increasingly focused on extracting money directly from customers, rather than through commission on their exchange, sounds a bit like a bookies doesn't it?  See the newly unveiled Betfair Arcade for example - this is a shameful expansion into online FOBTs (Fixed Odds Betting Terminals), designed to take money from the less clued up gambler and those with problems, completely and utterly against the ideals of a betting exchange.

This sort of activity I guess is predictable.  As a company grows, the original ethos is lost as costs grow and profits become the sole focus, as do employee bonuses..  There is an undoubtedly faceless feel to Betfair these days, buried deep in their midst (bloated underbelly?) are boards, think tanks and departments focused on how to get more money from the people using their site.  As a business, you can't argue with their aim to make money, as long as it is done fairly.

"Fair" is something this new charge is NOT.  It affects everyone, including those that have been told they would not have been charged in the last 60 weeks. I think it may be helpful here to define 3 key types of Betfair player, 

• The botter, these people program software to bet on their behalf automatically, through the day, on various markets.  Because of the automated nature of their betting, they can do so with sufficient speed and efficiency to vastly reduce the chances of not winning.  Dependent on strategy, some bots will win on virtually every market they play.
• The trader, we'll classify these as humans who like to buy and sell (back and lay) more than once (usually in-running), similar to how you might on a stock exchange.  As a result they often end markets with p/l's showing a win on both players or often a loss on both players.  There are more varieties of styles within this classification than the others, some traders will take more risk than others - holding positions for longer, basing their actions on the event they are trading.  Other traders will scalp, take much smaller risks, get in and out very fast and base decisions upon the market alone - arguably they are more consistent winners.
• The punter, he's an old fashioned gambler who bases his decisions on value or opinion before the event begins and runs it to conclusion.

All of these players are hit by the new charge.  But how can this be right?  Clearly some people can afford this new charge more than others.  "Afford" in this case is related to risk, value and the regularity of that user's profits.

Users who rarely lose, with winning books on any outcome can afford to pay more than others.  (I'm not in favour of this charge, but I'm being realisitc.)  Particularly botters, who use automated software and spend little time themselves actually placing the bets.  If you switch on a program and sit back while the funds come in, then personally I think 20% is probably cheap, considering previously you were paying 2% and no tax.  There is very little risk in what these users do, and "risk" I believe is the valuable commodity Betfair want to encourage with this charge.  See the Betfair forum for evidence of one or two botters not bothered by the increased payment.

The next group with lowered risk are the traders.  A highly contentious group, with a myriad of styles and levels of risk.  Much of the debate when this charge was announced was centered around this group of users and what their worth to the site is.  In fact this has always been passionately argued over, even before this charge, I could perhaps write a book on the subject. 

It's the variety of trading techniques which make this group difficult to charge accurately or gauge worth to the site.  Few people trade the same, and few trade consistently.  Some take risks and build large positions, others are buying and selling very quickly.  It seems unfeasible to charge everyone the same, when some win very often, and others provide as much risk as any gambler does.  The most important distinction here is that these are human, manual traders, placing bets.  Humans make mistakes, errors of judgement or plain accidents, no one can win 100% of the time and this must be taken into consideration.  It is impossible to see how this group could be charged as much as an automated program.

The unfairness of the charge is most easily demonstrated by looking at the plight of our gamblers.  If it was unfair to treat all traders the same, it is even more so to expose out-n-out gamblers to the chance of being charged.  The vast majority of people that simply punt, will already be paying above the 20% almost all the time.  This is fine, the edge that they seek in their bets will have been preserved (dependant on their handicapping skills).

But what happens when there is a week where every bet wins?  This is quite possible, infact it's probably a certainty to happen one week - given enough weeks.  The commission generated on gross profits they paid during this week dropped to their commission rate divided by 2, and their profits for the week took the average commission on gross profits over the previous 60 weeks well below 20% (quite a mouth-full).  They will now be charged the difference. 

The edge on all of these bets has been decimated!   A year's hard work of edge preservation has been destroyed in (what used to be called) a lucky week.  There is no way these people should be charged.

"Commission generated = (Commission + Implied Commission) ÷ 2" is the calculation used to reach the figure that will need to be made up to 20%.  "Implied Commission" is the commission that would have been paid on a losing bet (by the person / people who won).  This I believe is an average figure taken from the rest of the market participant's commission rates.  According to Betfair this is usually between 2.5% and 3%, but we have no way of knowing the precise figure at the end of a market.

Dividing by 2 really can mess you over though.  In the case of our punter who has a lucky week (with no implied commission), his commission generated is half the amount of commission he's already paid.  I had one such week displayed on my spreadsheet, my commission generated was actually 1.4% of my gross profits!

This whole thing is calculated terribly and over simplistically.  There are running jokes about the ridiculous small print on Betfair, but this is not a calculation they should have attempted to simplify.  What is needed is a actuarial style calculation based on what we can each "afford" to pay.  And this will vary as our method of betting changes, few people bet the same all the time.  This can't be worked out over the course of one week either, I suggest at least a month.

All of this discussion is nullified now we are into the charging period.  The charge appears to be going ahead, despite being ill conceived, rushed into effect and without preparation of the reporting features we are entitled to have, so we can see how much we are being charged.  To some, it seemed heavy odds against getting this far, now we are here, it looks as if there is no going back.

Talking of odds, this is a huge gamble by Betfair.  A punt of crazy proportions, perhaps their whole business... certainly their exchange image, by the way, this bet has already been settled and paid out - they lost!

For their sakes I hope they have done their own calculations right.  This is effectively "all in" by Betfair, gambling that masses won't leave and liquidity will be intact.  As a customer, it shows incredible arrogance.  They are abusing their dominant status in the Betting Exchange market.  They claim there is no such market, instead aligning themselves with the much larger Betting Market as a whole.  Convenient, but not their real competition.

A betting exchange is something vastly different to what bookies offer, populated by punters of a different mentality those on the street.  Their direct competition is other exchanges, not bookmakers.  Exchanges thrive on liquidity, without it - no punters, and with no punters - no liquidity.  That is a strangle hold over their competition and they know it.  The newly published Betfair Arcade and comparisons with mainstream bookies demonstrates Betfair's intended direction perfectly.

Can they get away with it?  Will liquidity cross the chicken and egg style divide and disappear to other sites?  It's tough to know, but the signs are that there is massive discontent among a very large portion of the users who feel abused by this charge.  Most of these people are traders (and many punters too), who defend their right to buy and sell passionately.  This is, and always was, one of the beauties of the betting exchange concept.  Many in this group can afford the charge, but most can't.  They are winning and losing types, they do provide meaningful liquidity and I believe it's a mistake to risk losing a proportion of this group.

Their closest rival is Betdaq.  Previously the liquidity there was a mere 5% or less of Betfair's, but it is improving, and quickly.  Rumours were that 800 new accounts opened the day after the charge was announced. 

Their commission structure remains similar to the way Betfair used to operate, and if you open a new account now, citing the charge at Betfair, you'll be given the 2% rate until the new year.  This is a good effort from Betdaq, but they'll need to show a lot more effort, and quickly for things to tip.

There is momentum for change at the moment, but with every passing day it dissipates.  Luckily there are some key events ahead which might provide much larger tipping points.  The first of these is when the charge is first levied next week.  Expect the amounts to be published on the Betfair forum, along with much annoyance.

The second of these and potentially the largest, is the launch of 3rd party trading applications pointing at Betdaq.

The problem with gaining liquidity and market share for a small exchange has always been the effort required of it's users to post bets with the prospect of not getting matched all day.  But if this never occurs, the liquidity will never grow.  It costs time and effort to achieve, and gamblers are not known for their patience.  The launch of one click ladder interfaces for Betdaq will remove the cost in time and effort required to do this.

I fully expect this to provide an massive boost to in running sports on Betdaq.  It will be easy to open up applications accessing both Betfair and Betdaq and bet into both at the same time.  Before long, we will have a choice.  The BetAngel team are working on their application as we speak.

Indeed it becomes very apparent that it's this 'liquidity divide' that Betfair believes provides the protection for their gamble.  If the divide is made easy to cross, then they are vulnerable to a fair marketplace and market forces.  In a fair market, I very much doubt one company charging 20% against their nearest competitor charging 2% would survive such market forces.

Will I continue to use Betfair?  In the immediate future yes, and probably longer term too, but if there is a switch, then less so.  I don't think it's wise to overreact and leave immediately (we know what happens to over-reactions).  I can afford this charge, I don't enjoy the prospect of paying 2-4 times as much money to Betfair, but I will still survive after it.

Saying this, I am not doing much betting at the moment, I'm working on my strategy and figuring out what is the best course of action to minimise this payment.  I do take issue when a company arrogantly uses it's position to charge it's customers, the introduction of the Arcade has also left a nasty taste, so I'm loathe to add liquidity to the exchange if I can help it. 

It has been suggested that we arbitrage our way out of the charge, not only by other users, but by Betfair themselves!  They were banking on that happening in my opinion, perhaps they might even have expected a rise in liquidity.  Either way, I find the prospect of arbitrage simply to nullify the charge's effects more than a little self defeating.  You provide more liquidity and you pay the commission they were going to take anyway, I won't be doing this if I can help it. 

My aim is to help provide more liquidity elsewhere, and to wait for the new BetAngel product for Betdaq to arrive before beginning to bet into both exchanges again.  I'm sure there will be some teething problems at Betdaq.  With the added activity, their site may well suffer to begin with, I think it's wise to expect this.  Betfair has also suffered downtime in the past, we all got up and carried on, the same will apply.

I think it's in everyone's interests that we have a fair marketplace with decent competition and choice.  If we can achieve this through providing liquidity elsewhere at the same time as Betfair then we will eventually have that choice, the easier this is made, the better for all of us using the exchanges.  We have to work together to make things change for the better, simply allowing such market dominance and arrogance to go unaswered is not the way forward.

There may be lessons to be learnt here by all the exchanges however, and that is, the issue facing Betfair's costs could eventually affect them all.  The money lost does have to come from somewhere, perhaps the other exchanges may be wiser examining the way their commission structures work ahead of time.  Losers and risk takers it would appear, need much more reward for their efforts.

 

Future blindness, Historical narratives.

I've been thinking about making this post for some time now, I've been very interested in recent months in the subject of how poorly we humans are at figuring out the consequences of our actions.  Particularly actions that we've made before, and continue to make, often with similar results. 

These results can be negative or positive, and there can be more than one consequence.  For example, you forget to put the rubbish out on a Wednesday evening, not only do they not pick it up on Thursday morning, but Mrs. Punt is less than impressed!  Perhaps a better example; you didn't get out of that trade when sentiment turned, now you feel stuck on an outcome which is drifting in price and appealing more to your value hunting, punter mentality, rather than the trader's mentality you entered the trade with (more on this example later).

The title of this post might be better phrased as, learning from your mistakes.  But I'm not sure it's quite that simple.  We certainly don't appear to learn as efficiently as we should, so I'm more interested in why, what's stopping us, and how can we make our best efforts to avoid errors or allow for consequences.

Those of you who have read The Black Swan, will recognise the phrases I have used in my title.  He talks a lot about our in ability to think forward, we are "future blind".  I refer you to the Black Swan Glossary, "Future blindness: our natural inability to take into account the properties of the future –like autism which prevents one from taking into account the existence of the minds of others." 

Not only this, it is apparent that we are excellent at adding narratives to the decisions we made in the past.  We try to give reasons why we did certain things, or didn't spot things or certain things happened... We suffer from the narative fallacy, "our need to fit a story or pattern to a series of connected or disconnected facts,"  how can we do this when we weren't even attempting to think ahead?

We wander through life making decisions, on the spot.  Faced with a set of variables, we take a certain direction, we don't generally think of the set of variables this new direction will offer up, and importantly - how likely some of these 'variables' are to crop up and further affect the time line.  Variables can appear in infinite guises, mental, physical, internal, external, out of your control and (if you are lucky) under your control.  In life the distribution of these consequences is random and extreme.  In sports trading - we have a random, extreme sport, and a slightly more mediocre and predictable marketplace to provide an interesting 2 fold puzzle.

Lets make this simple, if you are a trader, your job is to manage exposure to these variables and consequences (and associated probabilities) as best you can.  Why?  Because it is these that decide where you get in and where you get out of your trade.  If you don't make an attempt to quantify consequences, then you are not attempting to figure out your risk and reward, and the probabilities contained within.

I'm not saying you can be precise with your measurement of these consequences, no one knows the true 'value' of things, particularly in the more extreme random part of the equation - the sport you are trading and the participants in the marketplace.  The important thing to take away from this is 'the attempt'.  Merely trying to look for outcomes, both of your own actions and the action taking place in the sport (and their probability) is good enough to provide a framework of learning and future decision making.  Without this, you are confined to providing a best fit narrative, after the event... essentially, you are making up history!  (One has to wonder just how much "history" is actually made up, out of a need to add a narrative to fit what was a random situation.)

And how easy it is to start narrating..  Hindsight is a wonderful thing!  When we know what happened, it is almost always easier to see this outcome as obvious and of a much higher probability than it actually had at the time.  I refer you to Taleb's reverse engineering problem, "It is easier to predict how an ice cube would melt into a puddle than, looking at a puddle, to guess the shape of the ice cube that may have caused it. This makes narrative disciplines and accounts (such as histories) suspicious."

Let's go back to our examples above.  I was going to leave out Mrs. Punt, but then I thought it's quite a good example of how random things can be.  Here is a real life situation with an infinite number of positions and outcomes - an ice cube that could quite literally be any shape.  What caused me to not put the rubbish ('trash' for our American visitors) out?  What distracted me?  What mood was Mrs. Punt in when she came home, what caused that?  How likely was it that she would be in a good mood and not care (much) about the rubbish?  If we didn't realise how random life was, one thing we did know about was the randomness of female emotions!   Perhaps we should swiftly move on to our trading example..

Here we have a classic example of not attempting to think ahead.  I've hinted above that it's important to think of outcomes internally and externally.  Resulting actions of consequences occur on two levels, what happens in the World, and how we react, it's important to try to weigh up the probabilities of both and how they relate to one another, not straight forward, but very worthwhile. 

In our example, what was the probability of our trader changing his mindset to fit the situation?  To figure this out you need to know what situations cause the change, which of these can be altered by a change of strategy and which are vulnerable to the randomness of the market and the event it's based on.   

Obviously there are questions about why they felt the need to change... we'll not concern ourselves with those.  The bigger picture here, is that an attempt by the trader to put a probability on this happening - by assessing the situation constantly, is what will help prevent it occuring, by allowing them to manage their position well enough to minimise it's chance, presuming that they actually find this course of action to be negative...

Which of course, it is.  Changing the term (time scale) of your strategy mid-trade can very occasionally be suitable, but the rest of the time it is back-fitting at it's worst.  You are providing a new narrative to what is occuring to suit some poor trading decisions.  Which is why your assessment of the situation needs to be constant. 

Paul Tudor Jones in his interview in the Market Wizards book said that it didn't matter what price he was long or short from, all that mattered was what the risk / reward was right now, and whether that meant he should be a bull or a bear.  If it agreed with his position then he held it, if not then he closed or went the other way.

A recap.. How can we do our best to avoid future blindness, and our tendency to add narratives,

• Assess the situation on a constant basis, question various scenarios and their probabilities and always keep in mind that the scale of these can vary to an extreme and unpredictable degree.  Nothing is impossible, and many things you think are very low probability are very capable of happening.
• Assessments of event probabilities have a second layer of effect on the market, assess the way the market could react to these and use this to form an idea of risk and reward.  The market is what allows you in and out of trades.
• Remain skeptical about stuff that happened in the past, don't automatically assign a narrative that suits how your trading turned out... once upon a time, this was randomly decided.
• Don't add your own narrative to current events either, this will skew your assessments (avoid matches you think are fixed for example!).
• Keep a record of your attempts at guessing the risk and rewards for various scenarios.  You will only ever see one side of this guess resolved, the other side forms the risk or reward, and is of equal importance for your profitability.
• Constant reassessment takes a lot of mental energy, but gets easier with practice... it can become a habit / instinctual.
• Next time you are making a fast decision, base it on a honed assessment of what might happen and the risk/reward.  If you have time, stop and consider the results of what you are doing, because it's apparent not many of us do this often enough! 
• An important part of not making the same mistake again is looking for it ahead of time, the same goes for any new mistake.

I went through a long period in the last year of not getting anywhere.  When I did my analysis 3/4 months ago, it became very obvious I had simply been repeating the same strategic mistakes over and over again in cycles.  To put a stop to them, you have to first notice them and figure out why you made them, then begin to think ahead.  I realised that I was making the same errors simply because I wasn't watching out for them ahead of time, before long I would find myself in the same corner again, going through the same costly consequence.  I also found I was adding a narrative on the match I was trading rather than looking at what I was doing personally, as well as how the market had been moving. 

Hopefully now you will keep a watch out for the mistakes that I made in your own situations.  Keep your eyes peeled, and get 'back to the future'..  That is essentially what we are trading - 'the future', the future movements of markets and their related probabilities.

Gambling profit and loss, the numbers that matter.

Lately I've been looking to do more analysis of my results.  I think I've admitted in the past, that this hasn't been a strong point of mine.  In the middle of April I decided to ask Betfair for a spreadsheet of all the tennis matches I had traded since the start of 2007, so that I could catch up.  Since then, I have kept my own sheets with every match in it, the volumes I traded, average odds and match stats too.  In that time, I've traded 200 matches, and the analysis of this is becoming very worthwhile, with some pleasing and not so pleasing results.

So what are the numbers that matter?  And why?

You want to work out the average of your wins and losses.  The mean of all your results.  Clearly this is showing you what a match is worth on average, the sum of all your work is in this number, the bigger the better.

Next is your average win, and your average loss.  When you win, how much on average is that?  And the same for when you lose.  Now compare these two numbers, are your wins on average bigger than your losses?  If you lose on average more than you win then it's clearly going to be quite a battle, I know this from experience!

Now work out the percentage of markets you win on.  The size doesn't matter, just look at where you won and lost and work out a %.  This number, combined with the ave. win and ave. loss determines how well you are doing, and will describe to some degree how well your strategy is working, and maybe what type of strategy you are using.

For example, you might be someone who scalps a lot of trades or backs short prices where your win % is very high, but your average loss is much bigger than your average win.  Or perhaps you don't win often, but when you do, the payoff is much bigger than the loss.

You have to juggle these numbers and get them in the right ratio in order to win with your strategy.  If you are a trader, it describes something of the balancing act you are trying to perform.  (Ideally, this analysis would be made on individual trades and not overall market results... if you keep detailed enough records to do such analysis, then that is excellent, I don't, yet...it gets complicated with uneven matched amounts etc)  Though it's not an exact representation, your win % effectively shows how often you are right, but you will need to run your winners longer and cut your losses quicker than than this %.

For example, if you make 5% on an ave. win, or lose 5% on an ave. loss, then the % of times you are 'right' needs to be over 50% to make a profit.

My own figures show I lose slightly more on average than I win, but crucially, the % of markets I win on is 60%, so I'm ahead.  This is not the way I would like it however, emotionally, it is much easier to average more on a win than on a loss, it can often feel like 2 steps forward, 3 back, but a 60% win ratio keeps it going in the right direction.

Emotional stability is important for maintaining discipline.  Keeping records like this allows you to actually see a bigger picture of the war you are fighting rather than the losses you might take in individual battles - which inevitably stick in your mind longer than the wins.

It's this emotional side of things that can wear a trader down over time, we're all different in how we handle losses, some push on and are able to accept things, others suffer negative pangs on the back of each loss, causing further damage down the line.  This is a good point to introduce another statistical measure - variance.  More accurately, standard deviation!

Many people will remember this from school with some dread, it's worthwhile doing.  It gives you a measure of a set of results around the mean.

• A good article on variance and standard deviation.
• How to work out the standard deviation.

Typically around two thirds of your results will fall within one standard deviation.  In simple terms it's a display of steadiness or consistency of results.  If you are one of those people uncomfortable with large swings in fortune, then you need to work on keeping this number lower.  Regardless of how low you keep this, there will always be some randomness to the path your profits and losses take.

Here is a superb resource from vertical solutions called the P&L Forecaster.  You enter your average trade, result, week or month etc and the standard deviation of those results and it produces a 'forecast' for the next 100 measures of your unit.  Eg, you work out your average week, and the standard deviation of all your weekly results and enter these numbers, it forecasts for the next 100 weeks.

It's important to note that this is simply a measure of how varied your next 100 results could be.  Try the same figures again and you will get a different looking chart each time, because of the variance in your P/L.  Play around with it a bit, enter in some high standard deviations, and some low, notice how up and down a high variance set of results is and how smooth a low standard deviation chart looks. 

This should be telling you how important the bigger picture is and how random you can expect your results to be.  It helps to understand that losses (and wins) are part of the picture, you can't get down too much when you lose and high when you win.  As Brett Steenbarger says, "chance alone will affect the paths of returns. A trader who understands that it's not just about returns, but risk-adjusted returns, can best adapt to these trading realities."

And so we return to the smaller picture.  The interesting thing I think to be learnt from this is that the macro image is determined by the micro details and actions we take when trading.  A series of results where the win is bigger than the average loss, is down to individual trades with good upsides and small downsides (which happened to be more likely to occur than the market thought). 

Getting an extra 0.5% on an opening bet or closing bet can change the variance in your P/L, managing positions better in terms of risk and reward has the same effect.  As does selectivity and patience.  Cutting losses ultimately reduces the size of your ave. loss, running winners the opposite effect to your ave. win, both reduce the need to be 'right' so often. 

So, everything is interlinked down to the fine detail in trading terms, but our mindset and emotions need to be centered on the macro scale of things, understanding how each individual trade, market, week and month, affects the bigger statistical calculations.  Some things I have found most rewarding from this analysis:

• Cutting losses quickly reduces my average loss, and in turn makes improving the bigger picture a lot easier to achieve.
• Taking profits in order to 'get back on' later, (I call this my churn rate) has reduced my own variance slightly, by not looking for such big payoffs, which in turn require more time and potential for losses.  Result: ave. wins and ave. losses are both slightly smaller, so standard deviation has dropped... My P/L Forecaster chart has been smoothed out slightly and perhaps I'm less on edge that I might be.
• Waiting for more premium risk/reward opportunities has helped get the averages closer to one another or even favouring the win side since I did my analysis.

Most people still don't keep records of their activity, without records you can't really see where you are going wrong.  You might not even know you are going wrong, which is the major hazard with 'mental accounting'.  Perhaps this is a topic for another post..  for now I'll leave you with a couple of my figures, my win % is 60%, and the standard deviation of my wins and losses 3 days ago was 5018, now down to 4701.

Mini.Punt.com

Just letting you all know, there's a new professional gambling sub-domain to look out for - Mini.Punt.com!  I decided there was a need for something slightly different where I could post quick links, thoughts and ideas without diluting the more thoughtful pieces I post on punt.com.  Hopefully a nice collection of mini posts will build up quickly as it takes less than a minute to enter them. 

The site was built using Tumblr, if anyone else is interested in starting a blog or adding an extra sub domain blog as I have done I can recommend it, it's free and very quick to get going.  It's a work in progress, but I'm quite pleased with it so far..

Now to prepare for that Wimbledon draw..

"Chance favours the prepared".

I love this quote from Louis Pasteur, "In the field of observation chance favours the prepared mind".  I'm probably going to take this out of it's context, but I think the sentiment applies in many ways to trading and gambling.

I've been reading a fantastic book lately called "The Black Swan", by Nassim Taleb (links to be added later).  A man rather a lot cleverer than I, with a clarity of thought on the subjects of randomness and prediction which is superior to most.  I won't turn this into a book review, but I recommend everyone read it, the humour might not be to everyones taste, particularly the French, but it's extremely worthwhile.

Central to his theme is our inability to predict.  Especially things which are extreme or unimaginable to us.  It left me with a very healthy respect for randomness and much less respect for 'opinion'.  I was a big fan of his previous book too, (link on the left side of the page half way down) "Fooled By Randomness".  Taleb's background is in options trading, he specialised in setting up positions which exposed him to randomness well beyond the expectation of the market.  The payoff for which was vastly beyond what anyone could imagine the probability of it's occurance was.   Simply because it was unimaginable, the bets he was making were of fantastic value.

This was a new idea to me, a sort of 'exposure to randomness'.  Getting the unexpected, 'onside', in a cheap or even free way, that would pay large dividends if these unexpected events ever occured.  Conversly, the people trading in the opposite direction had no clue to the downside of their options and bets.  These were people who focused on small, repeatable profits (read short odds) which crucially, were "expected" to happen.  The lesson, never expect anything!  Especially profits.

Back to the quote.  He is not talking about taking your chances, or predicting your chances, or spotting a chance and predicting whether it will happen or not.  It's about being exposed to chance in the right way.  There is no expectation or prediction involved here.  Prepare yourself / your position so that chance's happenings pay off with the most reward. 

Taleb says, "you do not look for something particular every morning but work hard to let contingency enter your working life".  This is wonderful advice. 

On a practical level, I've been doing a lot of work on my trading to do with this.  Specifically the realisation that I am reliant on the market to allow me out of a position, really I've not been giving enough priority to this... I hesitate to use the word respect in this instance, having read The Black Swan, I'm fairly convinced the market as a whole underestimates many unexpected things.  What I am talking about is the fact that if I am to trade out of a position, then it is the market's position that allows me to do so, not me somehow bulldozing through it or willing it to get to a certain level before I can close.

How does this tie in ?  Basically I am allowing market contingency to enter my trading.  I'm exposed to the unexpected and thus, ultimately - panic and over-reaction.  My reward is greater than it should be, the risk (downside) is minimal.  These are the best trades you can have.

A lot of people use the term 'free lay', a bet with no downside and all upside should the unexpected happen.  Taleb calls these, "free lottery tickets" and suggests we collect as many of these as we can.  He's right you know. 

Most of all, look for situations where the unexpected will hurt you, and ones where it will reward you.  Minimise the former and expose yourself in as cheap a way possible to the later.

January roundup.

Well, I did say once a month didnt I...

The Tennis..

We started the year in Qatar, it's always good to catch as much early action as you can before the Aussie Open, or indeed the rest of the year and there were a few notable points that came out of this one (all my opinions of course).  Firstly, Ivan Ljubicic looked out of sorts, looked slow and inaccurate, based his entire game on his serve - nothing unusual there, just more so than normal. He'll need to sort himself out to stay somewhere near the top of the game..

Andy Murray won the tournament, but more than just playing great tennis, he was also looking considerably leaner and fitter than I've ever seen him.  Clearly putting on some muscle and losing any shred of fat he had last year...  his speed around the court was unbelievable at times.

The Aussie Open was fantastic this year.  Loads of great matches, even on the first day which is usually awash with one sided, boring matches.  Plenty of matches went the distance, it was great trading and surprisingly - good liquidity too during the night, very happy to see that.

Murray will be gutted he went out first round to Tsonga, I'm sure he fancied a very good run after Qatar.  Tsonga was unreal however, we all know that if he hits it inside the lines, he's fairly unstoppable..  huge forehand, big serve.. anyone who watched him go close to beating Roddick in the first round of the Aussie's the year before knew what he could do.  A breath of fresh air.

Fed looked slow and out of sorts, I'm a Fed fan, so I'm hoping it's just a result of his pre tournament illness and not the beginnings of a decline..   

Roddick had a huge match with Kohlschreiber which went deep into the 5th.  Personally I felt he had little game in that match and lent on his serve to get him out of all sorts of trouble..  the match stats suggest a very high quality battle, my opinion is they flattered Roddick hugely, the winners were coming from the German's racquet, Roddick simply far too passive.. no attacking intent from his ground strokes.  Massive improvement needed from him in this area otherwise I see him doing nothing this year.

Nadal looked pretty sharp, not something I was fully expecting given something of a flat finish to last year.  He looks ready to go, but was beating by a man playing out of his brains.

We haven't mentioned the winner yet, Djokovic.  I think a fair winner in the end, his level was above that of Tsonga in the final...  most noteworthy point on the Serb..  backhand down the line!  where has that come from ?! 

On the Womens side, although I dislike Maria, it was good ot see her come back and play perhaps the best she's ever played..  makes this year very interesting, with pressure back on Justine Henin now who was head and shoulders above everyone last year.  Maria's got herself a new set of wheels to get around the court it seems.  Gone is the heavy goods vehicle reverse beep..  impressive change in her movement, credit to her fitness coach, she was getting balls back that previously she had no hope of getting close to.

Wierdest match of the tournament, Serena Williams v Jankovic.  What the hell went on here ?!  Serena was playing some reasonable tennis before this, and Jankovic could barely run with all the injuries she has been accumulating recently.  Williams looked in pieces on court, serving at 75mph, hitting 25 backhands into the net and moved like the Sharapova of old.  She goes a set down, and suddenly, it's 110mph serves and the odd lashed winner...  but alas, the effort was too late, Jankovic fell over the line, almost literally.  I did a packet on this, but I'll live.. and learn.

The trading..

It was a good month.  The first good one for a while actually, I've been treading water for a while, but December's month off gave me a chance to reassess, and to work on everything I've been doing over the previous year.  A lot of experience had been accumulated which needed processing, experience with various ways of approaching things.  December gave me the chance to put a lot of things together into a clear structure.

Really I think the best thing to have come out of this month is the importance of the work I've done away from trading.  The preparation of my strategy, the work I've done on spreadsheets and the maths and continually thinking about and improving these things as I went along, between trading sessions.

As things stand now, I have a spreadsheet telling me what I should be staking and when, and you might think that sounds like something I should have had before..  you'd probably be right !  I certainly know now how much help it is being able to know without thinking all of the numbers that are important to me during a match.  I feel this has helped me massively.

I've said previously how important just acting out a plan is, well now the thought process has been distilled to it's simplest form - seeing numbers and acting on them.  Not just seeing numbers, but being told how much and at what price..  I'm faster than before, and I'm not making the errors of judgement I was.  In fact, "judgement" itself has been removed from the equation and that is the error I made in the Williams match.. a mistake I won't be wanting to make again.  That was my one screw up of the month and my biggest loss.

My biggest win was Djokovic beating Federer.  Incredible value on Djokovic during this match, infact it kept growing bigger and bigger and for a while I thought the market might get away with it, but in reality, there's only so much pretence the market can maintain - if one player is out playing the other then it will go his way eventually.  I remember one instance of laying Fed at 1.8ish with the belief that the right price was 1.7 on Djokovic. 

My big loss took 13.2% off the bank,  the big win added 13.8% on and for the month, it finished up 38%.

If you fancy reading more, Paul at Selectabet has been interviewing me and has recently posted the first part of it on his excellent blog.  Here's to a good Feb.

Update: I notice Part 2 is also up over at selectabet.

A punt.com Christmas message & review of 2007.

Well, it's been a while.  Apologies and also thanks to those that have so clearly continued to check back to this page for new entries in the time I've been away. 

Another year has passed us all by, and what a year it has been..  I don't think I've ever crammed as much into 12 months as I have done this year.  Many trips away, all over the world, New Zealand, New York, Portugal (twice), Sweden..  all for pleasure I must add and not work.  Some may think I've taken it easy this year, and although at times they could be right, in the times I have worked - I worked very hard, and not always with satisfying results, though certainly with many lessons.

Although I've spent many times on the blog bemoaning the solitude and boredom of working alone and being something of an outsider, I do know how lucky I am to be in this position and to continue to be in this position.  This year has had some stark reminders about how fragile an existence the professional gambler's career can be.. it is said by some that all gamblers / traders are terminal, we fight a continual battle within to keep this termination from occuring.  Many it seems succomb eventually, it serves to pay close attention when it does, no one is safe.

The idea of having 'time off' for the pro gambler is perhaps one that displays the relative health of ones mentality (and probably ones bank account too)..  though without one, you don't achieve the other.  Time off is essential to good performance, time off is also tricky to manage when you have a near constant stream of gambling opportunities coming at you.  The gambler in you wants to stay home to trade, sense, mental and physical well-being dictates otherwise...  it's for this reason that one might call 'time off' one of the fairest indicators of a gambler's psychological health.

More critical is the  relationship between time off and losing runs..  Do you follow a losing run by working harder, or do you restore mental balance with some time off ?  If you work harder and continue to lose, the pressure of having put in more hours will only hurt the cause more.  There's something special about the Human mind when it's given time to mull over the experiences you've fed it recently.. particularly if you are looking for answers.  Never giving yourself and your mind the time to perform this function will inhibit your chances of learning greatly.  I don't claim to understand what's going on here, but I think most people will have appreciated at times the positive effects giving something some time to settle, the mist can mysteriously clear without you actually doing much at all.

This year more than any other re-established for me the importance of process over profits (or losses).  I had a lot of streaks (good and bad).  I put this down to a few things, thinking about money and also spending a lot of time learning, testing and changing strategies.  This takes a lot of time, as a gambler you don't really know if something is working until you have a decent set of data - and even then you are at the mercy of randomness.  Data in this case being your P&Ls, the tendency to watch them perhaps a little easier when trying or changing strategies and in large part - watching profits and changing strategies tend to cause each other.

But, I think it's been worthwhile, come November I felt I could settle on something which encompassed all I had learnt in the previous 12 months.  November not really being the ideal time to become settled with the season finishing at the end of that Month.  Still, it has me looking forward to next year, the season being only a week away.

Not only did I settle on a strategy, but I defined all my risks and come up with a fool proof method of handling my risk point by point... a defined risk should be the backbone of any trading plan..  I have one, finally.  Had I been naive to not have one before ?- definitely, I don't mind admiting that.  I've always been a sensible person (my nickname is 'steady' afterall), but having all of these things defined really does take the pressure off and focus the mind on the process of executing the plan.  2008, will hopefully see my direction head firmly away from chopping and changing, and turn towards working hard and carrying out what I have planned.

It's been an interesting year on the blog too.  I began this blog one year ago, not knowing what to expect from it or myself writing it.  I have to say I've enjoyed it, though as my out of head post suggested, I think it's occasionally a hinderance writing about what I'm learning all the time!  I'd like to thank all of the people that took the time to comment on my postings and email me too, I really appreciate that..  also the other bloggers that have been writing steadily online, you are a constant source of interest, some of you have done very well this year, I wish you continued success.

So what of the blog in 2008?  The frequency of postings slowed towards the end of this year, partly due to me taking time off and partly because it was time for me to focus solely on producing a more complete plan of my strategy.  I didn't want to have to think much about anything else and this is probably going to be the case in 2008.  Expect fewer postings next year, perhaps one a month or one every fortnight to be the norm.  I expect these will be longer pieces though with plenty of good food for thought.  I may well post something in between if I really need to get something published. 

A couple of figures from 2007 seeing as people ask me a lot..  Largest win of the year; £37000, Serena Williams beating Hantuchova at Wimbledon, largest loss in 2007; £31000 Henman beating Tursunov at the US Open (win rounded down, loss rounded up as I don't have my spreadsheet through from Betfair yet..)

Time now to relax and enjoy the festivities (and my Betfair hamper;), all the best to my friends out there, and good luck for 2008! 

Matt

Out of head and onto blog = empty head?

Just a quick post this evening about something I've been noticing more and more each time I make a blog entry.  What I'm writing is not necessarily staying in my head once I've written it.  Not exactly an ideal situation, and not what I had in mind when I began the blog at all!  What I'm writing here is supposed to help me as much as it seems to be helping a few of the readers, lately it's been more of the opposite. 

What seems to be happening is that once an idea has been published, it's leaving my head, and has to be re-learnt again!  I actually seem to drop the ideas on a personal level once I've put them online!  Crazy.  I need to give this some thought, why is this happening?..  First thought: perhaps the blog is appealing a little too much to my ego than it should.  Am I feeding my ego too much here?

A lot of people think gamblers and big egos go hand in hand..  the stereotypical high roller is what they picture the professional gambler to be.  Successful gamblers and traders know the dangers of the ego, I would say those that do win are much more likely to have humility, and be willing to admit they are wrong much sooner than the ordinary punter.  They don't see this as anything to do with pride or shame, as is the case in so many walks of ordinary life... definitely pencil this topic in for another posting.

A few things to ponder anyway, not that it spells the end of the blog, but I certainly need to be more careful about dumping ideas here and not being focused on retaining them for personal use!

Idea for the week - you can't beat good pricing. (note to self:  don't forget this!)

Keeping the work / life balance, pressure avoidance.

..Or should I say, the gambling / life balance.  I've always known there was an importance to maintaining a good balance to life, but I hadn't realised the real reason why, how the mechanism works, until this week.

The importance of how I live my life away from the computer and how it affects my gambling and trading has always been obvious to me.  Having a life away from gambling keeps perspective and reality in check, staying healthy and fit maintains trading stamina and a clear head.  The importance of how and when I should take time away, and why that matters has been less than clear, in fact, not something I've spent much time considering. 

I've always been into figuring out how our heads work, how the various thinking mechanisms tick, inputs and outputs.  Though obviously nothing is ever clear cut with the human brain and our emotions, we're hardly a rational species at times.  But happenings this week made a few things clearer as to why it's important to do things away from gambling, and I'm not just saying this because I had a few losses!  ...I have losses every week...(though fewer than my wins - if I'm fortunate!)

This week saw plenty of work on offer, and I was in the mood to work, but I've had my eye on an event I wanted to attend this week in the city, nothing to do with work at all.  Now I could have gone on Thursday, in fact I had planned to do so when I woke up, but of course, there was work available, good work at that and so I stayed home thinking I would head out later... time kept ticking of course and I ended up staying in later and later, in the end, not going out at all.

All the while, it was playing on my mind that I really wanted to go out.  As I worked I had a few losses - the quality of which got worse as the day progressed.  The first losses were of the acceptable kind, good bets, well thought out and staked accordingly, fortune transpired that my player simply didn't win and that's fine.  But as time progressed, and I began thinking more about wasting my time staying in (especially as the sun was shining), I became distracted. Unknowingly, I was becoming more preoccupied with making my day pay it's worth for staying in.

Whenever you want to make gambling pay, more specifically - the time you spend gambling, you are instantly going to commit a heap of mental errors.  You place impatient bets, you get concerned about losing, enough to be tempted to chase losses, decisions aren't arrived at in the same way they would normally be, the list is endless.  We all know there's a million ways to lose in this game, not many ways to win, this situation is not exactly helping your cause.

The more I reflected on this on Thursday night, the more I realised how simple this really is.  If you don't want to work, if there's somewhere you'd rather be, stop working and go!  Clearly "work" in this case means gambling, I'm not suggesting you leave the office because you'd rather be playing golf, not unless you want to lose your job.  What I am saying is, if you'd rather be doing something else than gambling, you should do it.  The alternative opens the door to too much concern with time and it's wastage.

Come Friday morning, I decided a clear plan was called for.  The event I wanted to attend was still going on, I decided I would work until midday, then go, regardless of work.  Maintaining my life balance was of higher priority than placing a few more bets.  I have to say, it worked great, I was relaxed in the morning, I knew what I was doing and had a few hours in which to focus properly.  Equally as important, I avoided betting in a weakened mental state in the afternoon - avoiding losses.  Not only this, but my work / life balance was restored, perspective regained and I was ready once again to focus on Saturday morning with a clear mind.

There's two parts to this then, the 'time' element - anytime you are placed in a situation where you feel you 'have to' make the time you spend gambling pay, you are operating in less than optimal mental state.  And the other part is to do with maintaining perspective, recharging the mental batteries and reminding yourself of why you work, and why you focus properly when you do.  So much of our gambling and trading mentality is about positioning yourself in the right situations to think properly, doing stuff you want to do away from gambling, when you want to do them, is vital to our success.

Time, in gambling, is to be spent doing things properly and not meant to be used as some yard stick to measure whether you are finding it worthwhile or not - you can figure that out after a meaningful number of bets have been placed or time has passed, ie. several months.  Kind of paradoxical I know, but that is the correct attitude - 'staying in the present' is a more commonly used, easily understood description.   If you find you can't spend time doing the right things, then reduce the time you aim to spend, and commit to work properly for the entire time.

The difficult thing in gambling,if you are losing then you feel like spending even more time, working even harder until you have the money back.  But where does it end?  To what end are you going to spend all this time?  I have a friend who after having some losses, withdrew himself into work to such an extent that he stopped going out, ceased to keep up with friends and worryingly, was close to not even looking after himself.  Clearly, it could be easy to say he has a problem with his gambling, I'm not really commenting on that here - he may or may not, I'm reserving opinion, but what is apparent, when you analyse the time spent, is that he is not making any progress at all - just the opposite.

He was going round in circles, he would win for a while, then the amount of time he was spending gambling would begin to preoccupy his mind and add 'pressure', he would then begin to rush to make money, sure enough, losses would follow - more than he won previously.  He would then work even harder than before and so on, in an ever deepening circle. 

As silly as this sounds,  it's probably unnervingly easy to get involved in.  We've all got to be smart in this regard, keep a balance between gambling and life, overbearing pressure coming from spending too much time gambling will then cease to be a potential problem.

5 clues that a tennis match is fixed.

Given the recent focus on fixed matches on the ATP tour, I thought I'd write a piece about some of the signs of a fixed match.  This is by no means an exhaustive list, just 5 pointers to raise suspicions and importantly - raise enough doubt for those of us that bet on tennis to give it the swerve.

1 & 2, "Irregular betting patterns" before the match begins.  Most fixed matches will involve an amount of money being put down before it begins.  This is when liquidity should be at it's strongest - the odds being based on form, surface, physical condition, head to heads etc.  Liquidity being provided by bookmakers and betting exchanges, there's plenty of scope for a lot of money to be wagered on many different websites.

Things you should look for are;

• Larger than normal movements in odds.  Not just on who will win the match, but sometimes in the set score markets too.  It's fairly common for a player to be told to work towards a 3 set match rather than a straights sets win - money can be made just by altering the story of the match.  It's not usual for the odds to move a bit pre match in line with normal supply and demand.  Odds that move in excess of 15% are unusual and are either injury related, a very strong opinion expressed by one or more big players or signs of something untoward.  Clearly there is a need to stay on top of injury information.  The larger the move in odds pre match then the more serious the injury or the more fixed it might look.
• Markets being closed by bookies.  This is an unusual move from the bookmakers - what it is showing is that they have taken a large amount of money on one player or outcome and are of the opinion that this is suspicious: ordinarily they would continue to keep it open but just move their odds to make the other side of their books more attractive.

3, Odds during match bear no resemblance to the match itself.  There are certain movements in the odds during a tennis match which can't be argued against, unless a player is injured in some way. 

Using the Davydenko v Vassallo-Arguello match as an example.  A player that wins the first set comfortably (6-2 in Davydenko's case) without sign of injury should have his odds considerably shorter to win the match (perhaps 25-40% of what they were at the beginning).  In the case of that controversial match, Davydenko's odds were longer after set 1, even though he was cruising the match, injury free - it made no sense at all, other than someone knew what was about to happen.

This was only acheived with the help of a great deal of money being put on his opponent, thus soaking up the money that wanted to back Denko at these seemingly crazy odds.  Odds that don't conform roughly to the laws of probability are unusual.

4, Large amounts of one sided money during the match.  This in itself is not unusual, there's plenty of big punters in these markets, some will take a view.  It's also the case that in order to get all of this money on, they have to be agressive and sometimes go against the run of play slightly.  It's the extent and the timing of this seemingly contrarian view which needs consideration.  No respectable big player will give away "value", that's why they are having their bet.

Question things if large amounts of money go through at odds that are out of line with where the market has been trading, especially if the player being layed is doing well.  Of course, some degree of proof that these people were ahead of the game wil only arrive when it's too late for the rest of us, and even then, everyone makes mistakes or takes views occaisionally - if we're honest this is a hard one to prove a fix with.

5, The players act strangely.  Another difficult one to question, we're all human and prone to bouts of unpredictability.  If everyone was predictable this game would be rather easy wouldn't it.  A few things to consider;

• Players form during the match takes a larger than understandible turn.  Particularly if up already in the match.  Watch for numbers of unforced errors and double faults.
• Strange injuries that are not obvious during open play, with injury time outs taken at very odd times of the match - for example, when the player is winning - why interupt your own rhythm.
• Player body language, looks "bothered" at some points and not at others.  Entering very subjective areas here, it's very tough to call this correctly.

What some of this information should have told you is that it can be very difficult at times to decide whether a match is being fixed or not.  In fact I would go as far as saying that any of these 5 clues on their own is not enough to prove anything, it's when they happen together and in sequence that suspicion is raised.  One might add that a player's nationality could offer further clues.  It would appear players from Argentina, Russia and Italy are more likely to be suspect. 

The timeline of activity is the important factor here.  Money needs to be wagered in size - against the flow of the match or in highly liquid conditions, before the fix is executed on the court.  And even when this does happen - there is always the chance that this is an unfortunate coincidence.  The amount of money and the probability of the action that's taking place on the court has to be weighed carefully.

With so many matches under scrutiny, it's very easy to call "fix" when you are looking for it.  So don't look for it.  When it happens, it's very obvious.  Looking for it will affect your betting actions.  Normal decisions and reasoning won't be happening - you may even be trying to guess the fix.  It's asking for trouble.  If you suspect something, the right course of action is to stop betting on that match and move on.