Negapo and Captain Sensible commented/discussed over on the Gruss forum (click here to have a look) referring back to my discussion with Steve that started here. It’s about value and where we find value. Both discussions are interesting. Here’s how I see value and what it means to my bot.
The true value (true odds/true price/etc) of any horse/dog/yacht can never be known before the event. The fact is a horse will either win or lose (except in a dead heat but let’s ignore that for now). The closest thing we have to true value is the starting price (SP). If you were to back (on Betfair) every favourite horse at it’s SP, I’d expect you would be on average around break-even, having winning/losing runs, but nothing consistent (your wallet would decrease due to commission paid). If this was not the case and SPs were always overpriced for example, then this would be known and people would exploit them, which in turn would effect change on the SPs, pressuring them towards true value, therefore making the SP near to true value. It’s a system constantly being balanced by it’s participants (the crowd).
You’ll never know the true value of a single runner. You have your views though and decide that dog number two in the 15:35 has a true value of 4.0, the market is currently at 5.0, you back it with a stake of £10. It wins. Were you right or wrong to price it at 4.0? Again, you’ll never know, not on that one outcome. After the win, and after the fact, the true value was 1.0, because it won. In the unlikely event that you always pick winners, not one loser, then stop reading this, you are unique and very rich (or you’re trying to sell something). You’d also be able to say the true value of any of your selections is 1.0, because they always win. In all other scenarios though, you’ll know if you’re finding value bets because you’ll be making profit in the long term. If you repeatedly back at 5.0 when the true value is 4.0, you’ll see it in your results. You wont win every bet, but you’ll be on the right side making profit.
Finding value when trading is, or can be, different. Making profit will mean at least one bet in a trade is at value but this just has to be, as you’ll be making that trade across, or on one side of, true value, with both a back and lay position. I find it easier to explain this using some excellent graphics indicating back and lay points.
The trade in the image below, with respect to outcome, the lay bet is at value, the back bet isn’t. The result is profit.
The trade in the image below, with respect to outcome, the back bet is at value, the lay bet isn’t. The result is profit.
The trade in the image below, with respect to outcome, both the back and lay bet are at value. The result is profit.
The trade in the image below, with respect to outcome, the lay bet is at value, the back bet isn’t. The result is loss.
The trade in the image below, with respect to outcome, the back bet is at value, the lay bet isn’t. The result is loss.
The trade in the image below, with respect to outcome, both the back and lay bet are not at value. The result is loss.
From these professional quality graphics we can see two things for sure –
- If both back and lay bets are at value then you have a profit.
- If both back and lay bets are not at value then you have a loss.
In the other masterfully created images where one bet is at value and the other isn’t, it is the relative price of the back and lay that determines profit or loss.
What’s it mean to me?
This brings us back to the point I was challenging last year regarding API crashes – “Every bet you place with a bot should be sent because you believe it to be value at that time and it should be allowed to stand on it’s own merits.” – Steve.
Looking again at the first image –
If my entry point is the lay at 2.34 then not closing would leave me with a value bet. If my entry point is the back at 2.42 then not closing would leave me exposed with a less than value bet. However, I see statistical value in backing at 2.42 and I’m predicting a move to 2.34 due to market conditions, with no regard to the runner/selection/sport. I need to close the trade to profit. (These figures are for illustration, in reality I’d be expecting a move from 2.42 to 2.40, one tick only.)
I have no idea at all if my bot is entering the market at value with regards to outcome. My only concern is the short-term price movements. My bot is scalping, chasing pennies, harvesting small profit from others intended trades, jumping in the middle, whatever you want to call it. I have no care for the outcome or the sport, only the market and it’s behaviour. Therefore my requirement is to close out every time, for profit or loss, within seconds of entry. I am aware this type of trading is disliked by some, such is life.
Out of interest and in response to a comment by Captain Sensible, below is a chart of the results (P&L) of all the back entry bets placed over 6 months on the Australian horses. As can be seen I’d currently be over £300 up, hitting a high of over £400 and a low of around -£300. But there is no consistency to be relied upon here. This chart suggests to me that I’m not relying on my entry being at good value with regards to outcome. Closing all these trades resulted in a steady consistent profit.