It Doesn't Get Any Easier

Cassini has published a run of articles on sport trading's very own Chuckle Brothers, who have been promoting in-play tennis trading as a way of staving off the winter blues.

If you have read my How to Read a Sports Trading Website article then you will have seen through those vendor articles. As Cassini points out, trading tennis in-play is only for syndicates with court-siders plugged into algo-bots. Sitting at home with a delayed video feed will do little more than earn trading profits for the syndicates and subscription profits for the vendors.

My last article, The Paradox of Skill, received a reply from a commenter, confirming the paradox of skill from their own experiences. To recapitulate, the paradox states that as the skill level of a group of traders in a market increases, the abilities of the traders will even out such that all traders will have an equal chance of winning - i.e. luck plays a greater role.

Imagine an idealised market with only two traders, one is an expert and never makes a mistake. Whenever they back a selection the price falls and when they lay a selection the price rises. The other trader in the market is a beginner, they are always on the other side of the expert's trades, the wrong side. In our idealised market, the expert always wins and the beginner always loses, therefore the expert overcomes commission costs and makes a profit. 

The beginner goes away to lick their wounds and decides to learn how to build better trading strategies. They are successful and their skill level is now equal to that of the expert trader. Because the two traders are equally skilled and there are no other traders in the market, the two traders end up pushing money backwards and forwards, between themselves, whilst paying commission.

Sometimes the former beginner gets slightly ahead only to mean-revert and sometimes the expert trader performs in a similar manner. That is expected variation and in the long-run their net profit is zero minus the commission paid to the exchange.

A third trader - another beginner - joins the market and for a brief time the two experts compete for the losses incurred by the beginner. Eventually, that beginner learns how to be an expert trader and once again all traders are now losing to the tune of the commission rate.

Other traders may join, some become expert, some leave because they don't want to learn how to become experts and maybe a few are wealthy enough not to care that they lose money. It is the careless that the experts depend upon for their profits but if every trader is an expert then only luck can create a winner.

As the number of beginners in the market increases, the probability of a beginner getting lucky increases. A lucky trader might post a short-term profit (not to mention, starting a boast blog) only to mean-revert in the long-term and lose.

We can use the preceeding thought experiment to explain the consequences of trading courses. Imagine an educator has cornered the market for trading courses and has personally trained each and every trader in our hypothetical market. All traders have the same expert knowledge and so they too will push money between each other and lose the rate of commission in the long-term. We might call that the paradox of education, whereby being as equally educated as everyone else garners you with no advatange in life.

Why then would a vendor train people up to trade as they do? It can only be for one of two reasons. That the educator is not training his students to trade as he does but is misinforming them solely to get them to enter the market so that he can take a contrary position in the market. Alternatively, the educator doesn't care what these traders do because his main income is from teaching and selling other products.

You might ask if this paradox occurs in financial markets too. Indeed, it does. How do financial traders get around this problem? Well, they use high-frequency trading, dark pools and keyboard readers to intercept discretionary trader orders. All so that they may front-run other traders' orders before they go on to the exchange. Volume is bought ahead of the discretionary order by an algo-bot that has been tipped off to the trade and acts as a middle-man, taking a cut.

If all else fails, traders cheat. LIBOR and forex fixing, and the sub-prime mortgage scandal whereby the mortgages of people who had no chance of repaying the loans on their houses were sliced and diced with triple A loans to create CDOs that could be palmed off on the unwary (i.e. Deutsche Bank). 

Today, financial markets are so informationally efficient and so much processing power is thrown at the trading problem that in order to get the bonuses that traders crave for there is no option but to use underhand methods. Hence, we now have court/track/pitch-siders and match fixing in sports.

The commenter wrote:

I wanted to say thanks for writing your latest book, and this seemed as good a place as any.

I've been trading algorithmically for 4 years and am always happy to buy any book that may be able to give me a sniff of an edge. I can now confirm that you are telling the truth when you say this book doesn't offer one, but it's reassuring to see so many similarities between approaches, and I would recommend it to anyone taking their first steps into algorithmic trading.

In terms of this post, I can definitely confirm things are getting tougher all the time. My simple rules based code from 4 years ago has got much more complicated over time, but I'm currently making less with machine learning models than I was with the simple rules a few years ago. I always thought this an inevitable reality, but a few things do worry me. First, the introduction of the fee to use the betfair API can only reduce the number of new traders. Second, Betfair have a virtual monopoly in the sports exchange market, and whilst I have nothing against them, we are all at risk of changes to their terms (I may be doing BETDAQ a disservice, i haven't used their API for a few years). Whilst 10 years ago it may have seemed that the sports exchange was the future of betting, now it's not entirely clear if the sports exchange has a long term future, and it worries me every time I logon to betfair and realize that to a new user they're primary a sports book these days. This is one of the main reasons this remains a hobby for me.

It appears that I've stumbled upon a community of like minded people, so whilst I have no desire to share what I think are my edges, if anyone's interested in sharing some notes, let me know!

I am always happy to hear from other algorithmic traders even though edge is never shared. Algo-trading is not the glamorous (glamour seeking?) side of trading. Manual traders can play at being Bud Fox in Wall Street or Jordan Belfort (Heaven forbid) in The Wolf of Wall Street. Algo-traders have no pin-ups. With no ego to massage, algo-traders tend not to boast about their trades. "Getting it quietly" is definitely the catchphrase amongst algo-traders.

To be honest, I look forward to the day when all markets, both financial and sports, are filled with expert (most probably AI based algo-bots) traders who neither win nor lose. D-Wave's quantum computers may be edging us towards that day. Financial markets will return to their originally intended purpose, providing capital for economic growth and the eradication of poverty. Sports exchanges will be places where the poor don't lose their last pennies.

Does the sound of that bore you? Not I. The AI of the future, which creates efficient markets that are difficult to lose money in will probably be powerful enough to ensure that nobody needs for anything and there will be better things to do than risking money for gain. Maybe money itself will become obsolete. Until then, you have to hope that you are on the side of the informed and not the uniformed (or misinformed).

Of course, some sports exist solely as a conduit for gambling. Horse racing being the most prominent. There is nothing I can say that would console those who would mourn the loss of horse racing, but if given the choice I'd rather live in a world without want of food and shelter than one with a want for horse racing.

The Paradox of Skill

Buchdahl's Squares & Sharps, Suckers & Sharks (pages 137 to 142) describes the paradox of skill, whereby increasing levels of skill within an environment results in luck playing a greater role amongst participants in that environment. This paradox can be applied to both sides of the trading coin; namely traders and the underlying assets they are trading on.

Leicester City's remarkable Premier League title win 2016 can probably be put down to a combination of Leicester City playing above their mean expected performance level and the usual suspects playing below their mean expected performance level. A season later and it appears that Leicester City have not only mean-reverted but gone through to the other side and are now playing below par. We will put Leicester's surprising performance to one side and deal with long-term trends. 

The usual chant from one soccer fan to another is, "You bought it!" Over the past few decades more and more top-flight English soccer clubs have been bought up by the super-rich, a trophy club to go with the trophy wife. Obviously, the wealthier the patron the more likely they are to buy a big name team. A wealthy patron brings a bigger budget and with that comes playing and coaching talent from across the globe.

Eventually, all the top clubs will be bought up by billionaires, leaving other billionaires with no option but to create their own Premier League champions through buying lesser teams, lower down the league and in the Championship. Huddersfield Town, for any of you billionaires out there? After all they do have a history of winning the old First Division title so they have pedigree.

When the Premier League has become the NBA of soccer, every team will be supported by a billionaire. With all teams paying for the best talent, the chances of another unexpected champion, in the mould of Leicester City, will increase. Teams will be much closer in terms of playing ability and medical/sports/data science. The paradox is then that luck plays a greater role than skill and anyone can win the title.

The same is true in sports trading. Every trader is looking for edge (at least, they should be). Wealthier traders and syndicates can afford the best technology, an ideally located server, the best mathematical and programming talent, hoovering up the loose volume before others.

Sports trading markets will become cornered by a select few, able to act upon information more efficiently than casual punters and the lone manual traders working from home. Increasing long-term efficiencies in data acquisition, processing and trading will mean that the big players make ever smaller returns until such time that luck alone determines which one makes a profit, if any of them.

There will still be punters having a flutter and naive beginners who think they can beat their technological superiors but, as with online poker, they will dwindle in number. Online poker is not as popular as it once was. Technology and skill have marginalised many and those that remain push money to and fro whilst the service providers rake it in.

Trading is like poker, as the winners depend on there being enough losers to reward their activity. To be a winning trader requires the best algorithms, coupled with the best equipment to give the best chance of winning. As traders become better informed and better equipped there will be a levelling out of trading ability and the gap in skills between the winners and the losers will decrease. Subtract commission and winning traders might not make enough to make trading viable.
Sports trading will go the way of online poker with luck playing a bigger role, even for the most skilled traders. Of course, certain vendors, educators and unreviewed video and pdf providers will deny the validity of this article. I hope that I have put forward enough logical reasons to demonstrate that the paradox of skill is true. So why bother trading? At present, the sports trading equivalent of the technological singularity has yet to arrive but that day will surely come.

There are still plenty of people on the exchanges who are still gambling; using hunches rather than back-tested strategies, using tipsters to do their thinking for them or using their gut feelings rather than their heads. Some get lucky and boast about their (soon to mean-revert) success online thus creating the illusion through survivorship bias that their techniques are valid. Such traders are the ones who compensate the real winners, those who consistently win through hard work.

Every day, there are more traders who become better informed as to the correct way to bet and trade, how to use the latest technology, who take up algorithmic trading instead of manual trading. There are also those who refuse to learn, bust out and are never seen again. Those who are pre-determined to fail will become fewer in number as the overall skill level of traders increases to such a point that it is hard for anyone to profit. In that instance, sports trading should be treated as a failing asset and dropped from the portfolio. Until then, get it whilst you can.

Further Reading 


The Success Equation - Michael Mauboussin

Review of 2016

The year was a shock to those who backed the favourites in the two big political events of the year, thus demonstrating that nothing is ever "nailed on". I suggested a hedge position for both events should the non-favourites win, which they did and overall the hedge proved profitable. The world is ever more a chaotic place and year by year those who wish to control us, in all aspects of life, find it harder to do so.

The standout book of 2016 is Squares & Sharps, Suckers & Sharks by Joseph Buchdahl. The book should be read by many more than who appear to be reading it. Maybe people don't like to be told how much hard work is required to be successful and prefer their own delusions to the harsh reality. Too many beginner traders enter the exchanges following a viewing of Wall Street or The Wolf of Wall Street and imagine a lifestyle they wish to emulate. Jordan Belfort, really?

Having missed the chance to work in the financial markets (usually through a lack of ability and/or qualifications) some beginners imagine that sports trading will provide them with riches without the hard work. Buchdahl shows in S&S, S&S that whilst most don't make a profit, those that do, put in a lot of hard work and are unlikely to hand their edge on a plate to others. I recommend that you read the book before going any further.

Betfair unveiled streaming this year, whereby their data is pushed to client software rather than being requested. Streaming is a two-edged sword. For manual traders it is more noise and chaos with which to confound and confuse. The only traders who will make best use of streaming will be the algo-bots, able to process and act upon those millisecond updates. Algorithmic trading is the future of sports trading as it is already in financial trading.

Other news emanating from Betfair concerned the premium charge and the differing commission rates some people are paying. Cassini is handling that news more than adequately so I will leave that to him. I won't be discussing my commission rate because it is an integral part of my trading algorithms. Make of that what you will.

Cassini still shines amongst the sports trading websites. I think I'll start calling him the Teflon Don from now on as nothing will stick to him. Like myself, Cassini is never one to shy away from controversial statements but he never seems to get the flak that I get. Certainly, he doesn't get any offers of a chat from The Management for speaking out of line. Obviously, I am not as charismatic as Cassini. However, one characteristic we do share is that we never attract sycophants and fan boys. We don't need anyone to huddle around us when we are feeling a little sensitive.

I can't remember when I first discovered Trader247 but his output is worth reading. His articles are not detailed but he has mentioned to me that he may increase his content following a career change. We shall see. (keywords - pull, finger and out.) Trader247 is the kind of slow and steady algo-bot trader that I want to see more of. Some have poked fun at his small returns and don't appreciate the fact that he is consistently profitable.

If Trader247 was a quant in the financial markets, his manager would be throwing a huge bonus at him, such is Trader247's skill at picking up pennies in front of a steamroller as effectively as any high-frequency trading firm. Only the paucity of volume and market capacity prevents Trader247 from earning more. He has found his technical trading niche and I applaud him for that. I doubt his detractors make a single penny.

Advanced Cymatic Trader is still my software recommendation to those manual traders who have yet to make the jump to algo-trading. The software is as good as any other on the market and far cheaper. Created by Gavin Porter - a fellow computer scientist with a financial market background - the software gives sports traders exactly what they need. ACT was first to offer Position in Queue. Gavin leads where others follow.

For myself, the year has been a good one, with profitable algorithms developed. My new book, Betfair Trading Techniques, has proved popular. You will not find any of my strategies in the book. All I give is a solid foundation on which to research your own algorithmic trading strategies, pointing out the well-worn tracks and showing new avenues that may prove more profitable. I also provide a few tools to aid you in the search for edge.

Some manual traders and their fan boys castigate me for writing as many as 174 articles in the space of 6 years. How does an algo-trader find the time to write an article in 10 minutes, once every 12 days? Many of my detractors write many more articles in a single year and appear unable to leave off Twitter for as much as five minutes with their incessant babble. How do manual traders make any profit at all if they are glued to a screen writing guff on Twitter all day long?

This website gets more page views per day than most of its ilk so I must be doing something right. Curiously, outside of the UK the majority of my readers are from Russia and the United States, which are not countries I would immediately associate with the exchange trading of sports. Thanks to Google Translate I can read what my Russian cousins are saying. All good, I am happy to say. I have always thought that the Russians are a highly educated and intellectual people. Contact me for speaking engagements. I hear Saint Petersberg is nice.

The year 2017 will see me releasing more research. Again, no edge given, just tools for readers to do with as they please. My desire is to flood the exchanges with a new breed of algorithmic bot trader, who may have new ideas and new ways of looking at the trading problem and will take trading to the logical conclusion that I, Buchdahl and others have come to. Fuddy-duddies pushing tired old manual trading techniques can expect to be hounded again, throughout the year.

Predictions? Andy Murray to retain his number one position in the rankings and to win the French Open. With cycling's Grand Tours reducing team sizes to eight riders and Nairo Quintana still improving I think he could well win the Tour de France in 2017. And, more manual traders will turn to algorithmic trading in 2017 to avoid emotional, tired, loss-chasing, miss-timed trades and to take advantage of speed of data acquisition, processing and trading thus freeing up more time to enjoy life away from their monitor screens.

"Where could you get money that you don't give back? Let's go on with the show!"

(Ethel Merman - and in photo)

Wishing You All A Merry Christmas

I'm going away for a rest. The six months it took to write Betfair Trading Techniques have taken their toll. The short days don't help either. I am looking forward to the solstice.

Wishing you all a Merry Christmas and a Positively Edged New Year.

The Management Would Like A Word

Oh, what tangled web we weave
When first we practice to deceive!

Marmion - Walter Scott, 1808.

Today, we have access to many fine doctors who prescribe medicines that cure our illnesses. These medicines are manufactured by highly skilled pharmaceutical companies. However, our health system was not always like this.

In the past there were doctors of lesser quality, who not only cured the sick but who also produced the cure. We called these doctors quacks or snake oil salesmen. They told us that they knew what ailed us and that only they had the cure.

There was much malpractice, in those less enlightened and unregulated times. Often a quack would misdiagnose solely to sell more of the medicine they produced. They would also invent ailments and misdiagnose those too. Not only that but the medicine was often useless and sometimes harmful.

Today, sports betting and trading is no different from Victorian medicine. The web is awash with snake oil salesmen, promising us all untold wealth if only we would buy their cure. And like the cures of the past, many are sold without regulation and most are useless.

Tips are the snake oil of today, sold by charlatan tipsters. Matched betting is preached as a method for dragging the poor into prosperity. eBooks are sold by quacks from their websites rather than being reviewed and sold through independent booksellers. Trading courses are offered by untrained and unregulated ministers of supreme knowledge.

Recently, I was contacted by someone who wanted to "have a chat" with me. They wanted to put me straight, to make me understand their position. I declined. Some of what I have written went against their self-perception. Their desire to be in full control of the message on their website and on independent websites meant that I had to be put in my place.

Business is business. Vendors have product to shift and need to protect the message, the message that trading is not hard and anyone can succeed. I have just one aim on this website, to tell the truth. On this website I will tell you how hard it is to trade and that most will fail. A vendor will sell you some software and a training course with no caveats. In a zero-sum game, the majority of traders have to fail in order to compensate the lucky few who win large sums through skill or through luck.

Because my message is different there are those who feel I should be silenced. After all, who is going to buy miracle cures if the salesmen admit that most of their cures don't work and any that do only cure a few. You won't find me publishing profit and loss figures because they can be faked or they can mean revert, if I won through luck alone or because my financial resources may be greater than yours, forcing you to take greater risks. Nor will I post videos showing you successful trades because they too can be faked. It is a simple task to make video after video until the desired effect is found.

I only publish techniques and tools, not strategies that will soon loose their edge, and do so through Amazon, where it can be independently reviewed. The risks will be emphasised to you so that you know trading is not easy. And, I will continue to point out instances where others have lied, misled or have given less than rigorous mathematical statements. A person is never as good as they say they are. They are only as good as they can be proven to be, by others.

Trader Makes Shock Discovery

A leading trader has made a shock discovery after 16 years of diligent work. The trader announced to the world this evening that the Martingale system might not be good for your wealth.

Staff at Betfair Pro Trader can confirm that the term "Martingale" has never been used before on the trader's news blog. The research paper, entitled Loss recovery systems, yet to be published in Nature, gets off to a rambling start and loses the reader in the middle but finally hits the nail on the head when the last line states "Find an edge and don’t chase. Take your losses like a man!"

Why it has taken 16 years for the trader to discuss the mathematics of trading on such a deep level is not yet known. One theory is that the trader has started to read the research of others rather than isolating himself and thought it was time he pulled his finger out. If this is the case then the trader community welcomes this recluse into open discussion.

Other ground breaking research from the trader in question includes "How to cheat at cards" and "Moving a mouse across a table in three easy lessons". Surely the Nobel committee can no longer overlook such genius.

Horse Racing - Citations

The sport of kings. Often the first sport that attracts people onto betting exchanges, horse racing offers many routes into betting and trading, with pre-race and in-play markets for both fundamental and technical traders.

Academics, in economics and finance, have long been used horse race betting markets as a proxy for financial market research. Therefore, there is a long history of research in efficient market hypothesis, money management and trading/betting strategies with regard to horse racing.

NOTE - If any links to papers are broken then just Google the paper's title to find an alternate. Papers without links might be found in Google Scholar, JSTOR or Arxiv.

Benter, William. "Computer-based horse race handicapping and wagering systems: A report." Efficiency of racetrack betting markets (1994): 183-198.

Bolton, Ruth N., and Randall G. Chapman. "Searching for positive returns at the track: A multinomial logit model for handicapping horse races." Management Science 32.8 (1986): 1040-1060.

Edelman, David. "A competitive horse-race handicapping algorithm based on analysis of covariance." The economics of gambling (2003): 106.

Edelman, David. "Adapting support vector machine methods for horserace odds prediction." Annals of Operations Research 151.1 (2007): 325-336.

Hausch, Donald B., William T. Ziemba, and Mark Rubinstein. "Efficiency of the market for racetrack betting." Management science 27.12 (1981): 1435-1452.

Lessmann, Stefan, Ming-Chien Sung, and Johnnie EV Johnson. "Identifying winners of competitive events: A SVM-based classification model for horserace prediction." European Journal of Operational Research 196.2 (2009): 569-577.


Lo, Victor SY, and John Bacon-Shone. "A comparison between two models for predicting ordering probabilities in multiple-entry competitions." The Statistician (1994): 317-327.

Rosenbloom, E. S. "A better probability model for the racetrack using Beyer speed numbers." Omega 31.5 (2003): 339-348.

Rosenqvist, Gunnar. "ARBITRAGE AT THE RACETRACK." Contributions to Mathematics, Statistics, Econometrics, and Finance: 381.

More citations will be added in due course. Check back, often.