Value is a term often used in betting. It means that the odds you received from a bookmaker were higher than the actual chance of the event occurring regardless of whether you won or lost. Bookmakers have to offer odds on thousands of sports events and have teams of odds compilers calculating the correct odds to offer at the first show of betting and adjusting them swiftly as money comes in for each selection to balance their exposure. Other bookmakers and sports arbitrage can give them a real headache and it’s no surprise that you can often discover a situation where your perception of an event will be greater than theirs and you can spot a value bet to take advantage of. Spotting value bets and using strict money/risk management are the keys to long term investment in sports betting.
Successful forex and stock traders are in the same position exactly. They work to systems and know the odds of a trade going in their favour through trial and error and long back and forward testing of these systems. For any system they use they have an understanding of a few key elements which make the difference between making a profit or a loss.
The key elements of any system are as follows…
1) The strike rate. Any system, if followed completely to the letter every time, will have an average amount of wins against losses which you can express as a percentage. Through testing a trader will ascertain how many wins they can expect from a certain number of trades placed.
2) The risk/reward. Successful traders are always more concerned with how much they can lose than how much they can gain from a trade. The risk/reward determines how much they will need to risk against how much they would gain from any trade placed.
3) The break even rate. Using the risk/reward figure you can calculate the average number of trades you need to win to break even. That way if your strike rate is above your break even rate then you will make a profit on average. A system with a 50/50 risk/reward has a break even rate of 50%. At 1:2 you need to win over 33% of your trades to break even.
4) Money management/max drawdown. These two go together somewhat. Max drawdown is a term used in trading to define the maximum loss of your account you can expect to experience from a losing run before you become profitable again. Money management is a system of determining how much you should place per trade to ensure that you don’t get wiped out if you experience your max drawdown.
5) Psychology. A system is only as good as the person who follows it. Systems with high max drawdown and/or long losing runs can be hard to follow without strict mental discipline.
Putting all of the above together gives you a system. Let’s take an example…
A trader spots a pattern that occurs regularly on a particular currency pair. They notice that when a certain pattern occurs they can enter a trade and gain 50 pips (a pip is the basic amount that currencies move by) whilst risking 50 pips. There are two outcomes for each trade. Either the currency moves in the expected direction and they achieve a gain or the pattern fails and they experience a loss.
A successful system trader will test their theory exhaustively to ascertain the strike rate. Just exactly how many times out of 1000 or 10000 or 100000 will this pattern produce a win? The risk/reward is 50/50 or 50%, they either gain 50 pips or lose 50 pips. From this they know that they need a strike rate of 50% to break even.
If the strike rate is 50% they know that out of 100 trades they will win 50 and lose 50. The wins will amount to 50 x 50pips = 2500 pips. The losses will amount to the same.
If the system has a strike rate of 40% they will lose money over time. The wins will be 40 x 50 pips = 2000 pips and the losses will be 60 x 50 pips = 3000 pips. A loss overall of 1000 pips for every 100 trades.
If the system has a strike rate of 60% they will make money over time. The wins will be 60 x 50 pips = 3000 pips and the losses will be 40 x 50 pips = 2000 pips. A gain overall of 1000 pips for every 100 trades.
Often traders (bookmakers too) will work on very tight percentage gains, maybe as little as 1 or 2% gain for every 100 trades.
Also the trader will work out how many losses in a row they can expect. To be viable they need to use money management to ensure they can withstand any losing runs. Typically they will use an amount of 1% of their trading account or less to risk on any one trade.
The psychology aspect is an individual thing… How many losing trades in a row can I suffer and still have the discipline to follow the system? That is the biggest killer of new trader’s accounts, they haven’t realized that losing is inevitable and losses are just a part of the game.
So, what has this got to do with sports?
There are two types of people that bet on sports… Punters and investors.
A punter is the man in the street with a fiver to put on a horse. He may take a brief look at the form but is more likely going to pick the favourite as, after all, isn’t that the horse with the best chance of winning? (Er, no actually, not necessarily!)
An investor will take a different approach. The investor knows that to consistently make money from sports betting they must use a system and calculate the strike rate, risk reward, etc. They know that they must use a betting bank and only risk a small percentage of that bank on any one bet. They also know that a string of losers is inevitable at some stage and have the discipline to stick to their system and staking plan.
This is where we come back to the concept of value. Expressed in a slightly different way and using our knowledge of systems we can now say that value is placing any bet where the percentage odds are higher than your break even rate.
Just like the trader, the sports investor will have calculated the average odds for their chosen bets, tested their system to find out the percentage strike rate, thought through money management to find their optimal risk per bet and will have the discipline and patience to follow the plan through.
An example is a horse racing system…
Let’s say that a horse selection system picks horses with an average odds of 4/1.
The break even rate will be 20%. For every 5 bets you place you can afford to win 1 and lose 4. Now it is just a matter of determining your strike rate. If you can regularly achieve a strike rate of over 20% then you have a profitable system.
It really is as simple as that, find the average odds of your bets, calculate your break even rate, determine your strike rate over a number of bets (the larger the sample the better) and compare the two.
I have no idea why financial traders and stock market investors are held in higher regard than “gamblers” who bet on horses, football or anything else. The principle is the same, the only difference is the vehicle you choose to invest in. It’s true to say that if you approach betting on sports in the wrong way you will likely lose money. It’s exactly the same for financial markets, if you don’t know what you are doing you will get burnt.
To sum up here is a reminder of the key points and a few tips…
1) Use a system, determine the break even rate and the strike rate and compare the two.
2) Use a betting bank and only risk 1 to 2% (depending on the strike rate) on each bet.
3) Don’t bet with real money until you have taken the time to test your system thoroughly.
4) If you have tested the system thoroughly and it works on paper have the discipline to stick with it if/when you encounter a losing run.
5) Avoid staking systems that encourage you to double up or in other ways increase your stake after a loss. There is an old time stock trader who once said “the market can stay irrational longer than you can stay solvent”. This applies to sports betting, freak losing runs can and do occur all the time, you just have to sit through it and wait for the inevitable long winning streak that comes after it. The trick is to not bet the bank on one bet.
6) Remember that you do not have to bet on every event like the bookmakers do. There is plenty of time to get rich slowly rather than getting poor very quickly. Be selective in your selections and if they don’t meet your criteria exactly then don’t place the bet.
7) Look for sporting events where statistics may expose value bets that others may not have found. For example, statistically the favourite wins a horse race 33% of the time but in handicap races the percentage is much lower. On the all weather surface the favourites strike rate is higher. Where would you prefer to be backing the favourite? What about the corners market in football? Or the time of the first goal? There are many places to find value in sports betting, you just have to know where to look.
Thanks for taking the time to read this. I hope that I have left you with some things to think about. I hope that you find a system that suits your personality and enables you to make a consistent profit from sports betting.
