WHERE CAN WE FIND VALUE?
Some years ago a fellow trader and I were discussing the question of value, what it meant exactly and where to find it. At one point he remarked that just because a horse is trading @ 100/1 it doesn`t follow that its odds represent value. It could well be the case that 500/1 would be a fairer price on its chances of winning.
Trading football teams can present similar contradictions. A top Premiership side playing at home on a balmy September afternoon in the FA Cup against a League Two side is trading @ 1.25 pre KO. Those odds may actually appear to be quite generous and the true price should be closer to 1.12! However, change the scenario a little, for example, it is mid-January, the match is being played in Cumbria and the Premiership club are fielding a 2nd XI team since they want to keep their top guns fit and available for a crucial, title deciding clash three days later. Odds @ 1.25 doesn`t seem so attractive.
That is a fairly overstated example of how to determine value but instructive nonetheless. In Wednesday night`s Champions League final Group games other factors (and in Man City`s case included the scenario similar to the one described above) were worth considering when looking to see if the market had misjudged the odds on certain teams.
Below is the preview I wrote for some of the games played on Dec 6th where I felt value could be had in laying heavy odds-on favourites. I have subsequently added the final score and the P/L on each match:
Weds, Dec 6th: LAYING THE HEAVY FAVOURITES
The final round of the Champions League Group stage matches sees a number of heavy odds-on favs who could be worth taking on as LAY material.
MARIBOR v SEVILLA 19.45
If Sevilla beat Maribor and LIverpool fail to beat Spartak Moscow then the Spaniards will finish top of Group E. Maribor, the Slovenian champions, have been the whipping boys of the Group - Liverpool thrashed them 7-0 on their turf - but I`m not so sure that they will capitulate so easily tonight. I watched Sevilla v Deportivo La Coruna last weekend and witnessed an underwhelming performance. Yes, they achieved a highly creditable draw after being 3-0 to Liverpool but @ 1.26 away from home that price seems incredibly short.
LAY SEVILLA ASIAN HCP - 1.0 & - 1.5.................2 PTS
Result : 1-1
P/L : + 2 pts / 140% ROI
SPURS v APOEL 19.45
Spurs have fallen off the pace in recent weeks with two losses and two draws that has seen the North London boys drop to equal sixth with Burnley in the Premiership. Already assured of finishing top of their Group Pochettino will make wholesale changes for the visit of the Cypriots tonight. Apoel are in fine form themselves with four wins in their last five and scoring goals doesn`t appear to be a problem. 4-0 / 6-1 / 3-1 / 4-0 victories is impressive
LAY SPURS......................2 PTS
Result : 3-0
P/L : - 0.6 pts
LEIPZIG v BESIKTAS 19.45
To progress Leipzig need to beat Besiktas and hope that Porto fail to defeat Monaco. The Germans suffered a heavy 4-0 defeat to Hoffenheim last weekend while Besiktas, the surprise package of this CL Group, saw off rivals Galatasary 3-0 in the domestic league. The Turks are unbeaten in their last ten and are undefeated in their five CL group games. Although Besiktas have little to play for Leipzig do seem too short @ 1.40
LAY LEIPZIG....................2 PTS
P/L : + 2 pts / 280% ROI
SHAKTAR v MAN CITY 19.45
No odds on shots here but supporting Shaktar could be the way to go. City are assured of progression to the next phase and their immediate thoughts will be the hugely important Manchester derby this Sunday. Guardiola will certainly be rotating his squad for tonight`s encounter.
LAY CITY ASIAN HCP 0 & +0.5...........1.5 PTS
BACK OVER 2.5...................................1 PT
Result : 2-1
P/L : + 2.5 pts / 82% ROI
Good post, Bingo. I would absolutely agree with Steve. The concept of "who cares about value if your selection wins " Is ludicrous. Value is at the absolute core of punting or trading, and to say otherwise would betray a basic lack of understanding that would, sooner or later, inevitably lead to the poor house.
It should be obvious, but it still bears repeating. Odds are a numerical representation of the probability of a specific event occurring, But in reality, that only applies to statistics, not gambling. Again, to borrow from Steve, a coin flip has a STATISTICAL probability of 50% of coming up heads or tails (assuming landing on edge is a "void" toss) Ergo, the odds are 2.00. In statistics, value is impossible to obtain. The odds are what the odds are.
The outcome of any sporting event is a matter of interpretation. That interpretation results in an opinion of probability which is then translated into an opinion of the odds. A traditional bookmaker will then take his over-round into account before offering these "opinions" to the market. Long and short, we are already at a disadvantage, because if we assume that his interpretation of probability is accurate, we are on the wrong side of the value equation already.
In straightforward gambling, It follows that if we back a sequence of events at odds that are worse than the actual probability, we MUST lose eventually. It is a statistical inevitability.
That over-round alone is why it has historically been so difficult for pro-punters to make a profit over time, and for a serious pro, the maximising of price(odds) is absolutely crucial to making the margin the small edge they need to get ahead.
Enter Betfair. The advantages we gain are two fold and well known. The prices (and therefore the expression of probability) are set by the opinions of all involved, and the prices move on a supply and demand basis. This creates our first opportunity to obtain value, and if we can do this, we obtain a statistical advantage, and with it, we make profit over time. This is made, relatively, easier by the fact that the bookies' over-round is replaced by a smaller stakeholder's commission.
Given that your long term profitability as a trader is dependent on your long term success, therefore, any win where you don't get value adds to the overall statistical improbability of you making long term profit. It must do. Conversely, each and every bet you place where the odds of that outcome are better than the probability increases your chances of an individual win and a long term profit.
But for traders it gets more complicated. The aim of the trader is to reduce his risk and yet still make a decent profit. That means we are already tending towards short prices if one is to calculate the overall probability of a return based on the trade as a whole. This makes value even more crucial, and this (finally) is my point. Traders need value as much if not more than any other type of punter and it is often the construction of our trades that determine our long term profitability. If every element of a trade is placed at poor value the end result becomes even more magnified. Our good trades yield tiny returns, and there is a swing between profitable trades and losing trades which is the swing between profit and loss in the long term.
This is also why our trades need to retain an element of risk to generate the necessary return. If we over insure against loss, we fail to understand value and we ruin our one chance of coming out ahead in the long run. In my opinion.
I earn a modest income from trading. I attribute that to four things:
1. An ability to find value on the markets I follow.
2. A willingness to leave some outcomes exposed to render the trade profitable.
3. Never trading for the sake of it. I only trade games where points 1. and 2. can be put to good use.
4. Knowing when it's time to hold or fold.
Over the years I've been doing this, the margins for me are small. Less logically, I need to be in the right mental frame of mind to trade successfully and I need to trade with an amount that isn't large enough to cloud my judgement.
But value is at the core of all of this, and I would have serious misgivings about anyone who didn't feel the same way.
Great post Bingo, and well done for last night. There is a school of thought that says "who cares about value if your selection wins"? Nonsense imo. The easiest way to explain value is the old adage of the coin flip. (Assuming its not a dodgy coin), it is a true even money chance of both, so if you were offered odds against on one of them you would know that over a period of time you would come out in front. Not as simple in football of course as you say, but worth looking out for, we should never be scared of laying short price favourites if the research warrants it.
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