Wednesday, 30 January 2008

How to be a Success

What do I believe are the key factors to enable me to succeed?

Below are my 12 commandments that I am going to stick to throughout the length of The Experiment:

Ø Knowledge – I need to remember that as long as I have did my homework and I believe in my findings, I should not be afraid to take a stance in the market different from everyone else. Knowledge is the one thing that most traders on Betfair lack, so as long as I stay true to my principals, I should do well.
Ø Discipline – I need to remain disciplined at all times. If I suffer a large win or loss, this should not impact on any of my decisions. This has been ‘drilled’ into me from an early age, so I believe I have the discipline to act rationally at all times.
Ø Research – I need to do my research before I start betting on any event. Never bet ‘blind’ on any race or market. Even spending 5 minutes on each race to view the form is better than betting blind. Most traders believe that they don’t need to do research as their trading skills can bail them out. Since I have no trading skills, I need to do my homework!
Ø Look for Value – Again, something that I have been taught from an early age. It doesn’t matter how many winners you pick, it only matters that you bet on the selection that offered the best value. This is true even if you believe that the horse which is bad value is still far more likely to win. In summary, bet on the selection which offers the best value, not the selection most likely to win.
Ø Time – Set aside enough time to be able to have a chance of being a success. Even though I intend doing this every afternoon only, I should look to do some preparation the previous evening.
Ø Low Risk Trades Only – Do not get involved in trades that are very high risk. For example, do not trade on very short price favourites to win events when they have nearly won anyway. Never bet on 1.01 selections on Betfair.
Ø Cut losses short, let winnings run – Again, something that I have learnt from studying Betfair over the last 12 months. When the market has gone against you, stop the loss immediately. Do not hope that it will turn in your favour. When you are with the market though, don’t look to bank the profits until you are sure the market will turn against you.
Ø Build profits gradually – The Experiment runs for 12 months. Do not try to exploit the profit opportunities until you are sure you have enough knowledge to do so fully. Keep stakes low at first until you gain experience and confidence.
Ø Learn from mistakes – If you do make any errors, learn from them and don’t beat yourself up too much. I am new to this game and hopefully, I aim to be in the game for the long-term.
Ø Keep detailed records – The only way to judge if The Experiment has been a success or not is to keep records of how I got on every day. The more detailed records, the more in-depth analysis that can be carried out in the future.
Ø Be Patient – I need to remember that I am not going to make large profits at first in this game. I need to learn how to play by the rules first and only once I have did this can I expect to make reasonable profits.
Ø Luck plays no part in my success – This is the first lesson that I was taught at 4 years old. If you fail to win at gambling, it has nothing to do with luck. It is more likely to do with the fact that you misunderstood the form or didn’t understand the market that you are betting on.

If I follow the above rules, I should have a real chance of being successful during The Experiment.

Trading Software Summary

How will I place my bets on Betfair?

As you may be aware, there is a large amount of Betfair Trading software available to use and many people are using this software. In addition, there are many different types of Betfair software available. Some of the software will help you place bets with the click of the mouse, others will help you with staking plans whereas other will simply make it quicker to use Betfair (but not necessarily easier!)Before I discuss the software that I will use throughtout The Experiment, I will look at some of the positive and negative attributes of Betfair Software.

PositivesOne Clink Wager Placement: This is an application that allows the user to place or lay bets with the click of the mouse. People using this software automatically gain an advantage over users betting with the normal betting interface.Flowing of Money Indicants: These are indexes which exhibit the "flow of money" on any event at a betting exchange. Traders use this information to try to ascertain whether or not a price will move up or down so that they can try to arbitrage a profit. If there is more money on the lay side, it usually signals the price will travel down. More money on the back side usually implies that the price will travel up. Profit Equalisers: If you have made a profit from arbitraging, you can use this function in order to ensure that you make a guaranteed profit regradless of the outcome of the event. Similarly, there are also Loss Equalisers which equalise a loss over all results.
Application Freezing:

In some circumstances, the trading application or your computer may freeze leaving you marooned in a very open position. To stop this from occurring, it makes sense to have more than one inetrnet connection operating and it also makes sense to have more than one PC set up in case it crashes at a very unappropiate time. This may sound a bit drastic to some but it makes sense. For example, if you are trading in blocks of £1,000 and your computer suddenly crashes, you may be left with a £1,000 wager on a horse that you can’t lay off before the off.
Human Faults:

Typing errors can be made more frequently using powerful software. Being able to put on a bet with the click of the mouse obviously has its advanatges but if you wrongly click the mouse at the wrong time, you could be left in a very vulnerable position.

As can be seen from above, Betfair software has good and bad points. One important point to always remember is that the software is only as good as the individual controllling it.
Throughout The Experiment, I will be using the Betfair software entitled Bet Angel Pro. I have looked into all of the software available and this seems to fit my needs best. It is possible to acquire this software for around £299 a year.

Results Tracking

How I plan to track the results of the experiment

One of the most important things to do regarding any experiment is to track the results of the experiment. Clearly, without tracking the results of an experiment, it is difficult to analyse the performance and whether the experiment was successful or not.

Every day, I intend to keep a detailed diary of every race that I bet on. This is especially true for when I am Dutching as I hope to be able to spot which type of races are the most successful races for Ducthing.

An example of the notes that I will keep for Ducthing are:

Clearly, the above data will allow me to analyse my results quite clearly. Incidentally, the main reason for capturing the race time is so that you have a record attached to each bit of data that can be exploited further by you if it is needed some time down the line. For example, I don’t capture the type of race (handicap, class etc.) but all of this can be obtained at a later date as long as you know the date and race time.

I will keep a daily log of the results in a separate spreadsheet but these can also be added together at a later date for further analysis to be undertaken.

I plan to use a similar method to track the performance of my trading on a daily basis. I will track the following data:

Again, the data above will allow me to analyse the performance of my trading on a race-by-race basis.

Daily Results

At the end of every day, I will calculate an overall profit and loss for each of the two types of betting (trading and gambling). Importantly, I will not look at or analyse the overall result too much as it is important that I think of these 2 strategies as independent of each other as much as possible.

Analysis of Daily Results

I hope to set up a blog on the internet where I will discuss my daily results and how I feel the day’s gambling has been. The main reason for doing this is simply so that I can look back at my notes when I get more experience to try to understand what I have learnt and where I have come from. I expect that there will be a very steep learning curve at the start of The Experiment and that I may have some very bad days at the start of The Experiment.

Another reason for keeping results is simply as a motivational tool to succeed. By making my results public, this will give me extra motivation to do well at times when I may not be doing so well as I don’t want to embarrass myself by failing to succeed at this.

Bankroll Management Strategy

How do I plan to manage my £15k capital?

I plan to only utilise £5k of my overall capital at the start of The Experiment. The main reason being that I don’t want to be fully exposed at the start of The Experiment as I expect that there will be a steep learning curve and I am likely to be most vulnerable to losing all of my bank at the start when I have limited knowledge and no experience of serious trading or gambling.

I only intend to keep £5k in my Betfair account at the end of any day. I will withdraw any winnings made each day on Betfair and I will add the amount that I have lost in any day to my Betfair account. The simple reason for this is that I want my exposure to only be £5k at any time and if I made a serious error i.e. laying a horse for my entire bank by accident, I will only ever be liable to lose £5k and not any profits that I have made over time.

Another obvious reason for not leaving unnecessary money in my Betfair account is that I will earn no interest on the money while it is held in the account. I will keep the £10k residual amount of capital and any winnings I make in a high interest-bearing internet savings account where I will be able to access the money immediately if it is needed.

Trading Amounts (Arbitrage & Hedging)

At first, I will trade in blocks of £100 - £500. Obviously, the trading amounts depend on the price of the horse being traded and whether I am trading short-term (10 minutes before race to race time) or long-term (morning of race to race time). In addition, unlike most other Betfair traders, I will not only trade the favourites in each race. I will trade the horse that I think is most likely to be backed (steamer) or laid (drifter). This obviously increases the risk of my trading but it will increase my returns also.

Gambling Amounts (Dutching)

At the start of The Experiment, I plan to earn £5 profit on every race through Dutching. I will also follow a staking plan that allows me to recoup losses to some extent after I have had a loser. The exact staking plan I will use is one that I produced whilst at university and I don’t intend to share the staking plan here.

The staking plan has been tested over a sustained period of time and generates returns of between 5%-10% of turnover through Dutching. The plan also includes a stop-loss trigger which will operate throughout The Experiment. Once the stop-loss trigger has been reached, I will start the plan again with an increased target profit amount in order to try to recoup earlier losses to some extent. At no point will I vary the profit target depending on the type of race or horses in the race.

Once my bank has increased sufficiently, I will look to increase my Dutching stakes accordingly.

Exposure and Liability

Losing is going to be a large part of this game and so, you need to be clear as to what your limitations are. Since I’m treating this as an experiment, I will be prepared to lose the whole £15k over the course of The Experiment. However, as stated above, I will only ever be exposed to £5k at any one time as this is the maximum amount that I will keep in my Betfair account.

If I do lose my first £5k at some point, I will just treat this as a sunk cost and start from the beginning again with my next £5k.

With regards to any one event, I will aim to never lose any more than £1k. In reality, even if I’m in the red on a runner for £1k, it is likely that I will be able to trade my way out of it before the race starts, so I can minimise my losses somewhat.

Betting Strategy

What is my betting strategy?

In summary, I intend to pursue a low risk, low return betting strategy. Obviously, depending on the type of trading and gambling that I am undertaking, the risk and returns may vary a great deal.

In this 12 month experiment, I intend to concentrate my efforts on Trading and Gambling on Betfair. At first, I will only specialise in horse-racing but over time, I would look to diversify into other sports.


The main attraction of Betfair trading is the ability to generate a profit regardless of the outcome of an event. This is possible through the use of arbitrage and hedging.

Arbitrage is a concept that is well known in the stock market and involves buying shares at a lower price and selling them at a higher price. In Betfair terms, arbitrage means "Back High and Lay Low". It doesn't matter which one you do first. In simple terms, you put money on a horse to win at high odds and then lay the horse to lose at lower odds.

Once you have created an arbitrage situation, you will effectively have created a risk-free bet for yourself. In order to benefit from this risk-free bet, you would still require the bet to win.

Hedging allows you to exploit the arbitrage situation by generating a profit regardless of whether the bet wins or loses. Hedging means that you would lay off the arbitrage profit so that you are in the same financial position whether the bet wins or loses.

Clearly, trading sounds very simple in the sense that you back at high odds and lay at lower odds. The difficulty lies with the fact that it is difficult to find bets where you know the odds will change in the direction that you predict.

Trading tends to be very low risk and will therefore only generate low returns. However, it is possible to trade on every horse race or sporting event quite effectively, so the small returns generated will soon build up.


One of the main attractions of gambling on Betfair instead of with a regular bookmaker (e.g. Ladbrokes) is that the odds offered on Betfair will generally be more favourable to the punter even allowing for the commission deduction. The reason for this is again fairly simple. Odds offered by traditional bookmakers have an element of profit margin included in the odds in order for the bookmaker to make a sufficient return. Betfair odds effectively have no profit margin included although you need to bear in mind that commission deductions need to be taken into account when comparing odds between Betfair and traditional bookmakers.

To exploit the better odds offered on Betfair, I am going to use a betting technique called Dutching throughout the course of The Experiment. Dutching involves backing more than one selection in any event in order to generate the same amount of profit regardless of which selection wins.

The main reason for using Dutching is that it allows you to generate a very high strike rate of winners. Obviously, the odds that you are backing at using Dutching will be much reduced as you are backing a number of selections in an event but the key thing is that you will be able to have a very high strike rate of winners.

Anyone who can guarantee a high strike rate of winners should be able to make money from gambling by using an appropriate staking plan in order to exploit the high strike rate.

I believe that using a Dutching technique with my intended staking plan should generate moderate returns for a moderate amount of risk.

Overall, by using both of the strategies above, I hope to be able to carry-out a betting strategy that carries little risk but will provide steady small returns. Importantly, Trading and Dutching can be used on any horse race and any sporting event. Therefore, the more events I bet on, the greater the monetary benefit that I should experience (if all goes to plan!).

Risk and Capital Financing

How much am I risking by carrying out this experiment?

To calculate the opportunity cost of this experiment, I need to calculate the lost income and increased costs that I am likely to face as a result of this experiment.

§ Lost income from work - £337 a month or £4,044 for the duration of The Experiment. This includes reducing my current salary to 75% of its current level (plus a small increase for inflation) as well as foregoing 25% of an estimated performance related bonus for the 12 months of The Experiment. (Incidentally, reducing my salary by 25% only leads to a reduction of 20% in my net pay due to tax deductions and student loan deductions decreasing.)
§ Increased travelling costs – Since my girlfriend and I both work for the same company, we obviously benefit from reduced travelling costs as we share a car to work. As a result of The Experiment, our travelling costs will increase by circa. £100 a month or £1,200 a year.
§ Software costs – I need to invest in some software (Bet Angel Pro) to enable me to carry out The Experiment in an appropriate manner. This software will cost me £320 for the duration of The Experiment.

In total, the opportunity cost of this experiment is £5,564 for 12 months. This is equivalent to £464 a month. Of course, this excludes the capital required to carry out The Experiment in the first place!

How do I plan to fund this experiment?

I believe that there are only two ways to fund the £15,000 capital that I need to carry out this experiment. These are a Personal Loan of £15k or increasing my mortgage by £15k. The figures for both options are:

o Personal Loan

Ø A £15k loan across 5 years means that I would have to pay £3k in interest repayments.
Ø My monthly repayment would be £300 for 60 months.

o Increased Mortgage

Ø Increasing my mortgage by £15k would result in me having to pay around £13k in interest payments across the next 24 years.
Ø My increased monthly repayment would be around £100 a month for the next 24 years (varies depending on interest rate changes).

I believe that the mortgage option is the correct finance option for me as it is basically a risk-free option. If The Experiment fails, I could easily afford to be penalised by paying an extra £100 a month towards my mortgage. However, if The Experiment were to fail, I would be heavily penalised by the Personal Loan option as I would struggle to meet the repayments of £300 a month without changing my lifestyle.

As I don’t want to be paying an extra £100 towards my mortgage for the next 24 years, I am going to aim to pay back the £15k in 5 years time. Hence, I effectively get a £15k loan for a reduced interest rate with the safety-net of knowing that if The Experiment fails, I will only have to meet repayments of £100 a month (although it would be for 24 years!)

Cost of Capital Financing

As stated above, I want to pay back the £15k in 5 years time. Until I pay this back, I will face interest payments of £100 a month. Hence, the cost of the loan is effectively:

Finance Cost = £100 a month for 60 months and £15k at month 60.

For simplicity, if we exclude discounting, the cost to me is £21,000 over 5 years or £350 a month.


By looking at the opportunity cost of this experiment, I can see that the cost to me every month for carrying out this experiment is around £814 a month! This of course assumed that I want to pay my £15k loan back at the end of 5 years. If I decided to live with the increased mortgage costs for the next 24 years, the cost to me every month is around £564. Whatever way you look at it, it’s going to be an expensive experiment……..

The Experiment

I have agreed to reduce my hours at work to enable me to gamble in the afternoons. I want to try my hand at trading and Dutching in particular although I will not be doing what most other traders do on Betfair.

Many traders on Betfair use the speed of their software applications or internet connections to try to gain an advantage over other uses. Most traders trade the favourite in every race and are willing to put large sums of cash on things that are nearly certain to win in order to win a small return. Other traders try to trade very large sums of cash on very small movements in betting odds to generate their returns. Lots of traders will bet on any sport that is available to them i.e. racing, football, cricket, rugby, tennis etc.

For The Experiment, I will do things my way (as Frank once sang). Unlike most other traders and gamblers, I will use knowledge to generate my margins and returns. Instead of waiting to see what way the market moves before I trade, I will price up my own market and play on the horses which I think are a false price. I will bet on the horses which I think are wrongly priced and I won’t be afraid to take a position in the market if the formbook justifies it.

Unlike other traders, I will only specialise in horseracing for the course of The Experiment. Overall, I calculate that over 7,000 races in Britain will take place during the 12 months of The Experiment. Clearly, due to work commitments and holidays, I will not gamble on every race. However, I do reckon that I can bet on over 5,000 races over the 12 months.

My aim therefore is to win an average of £10 on every race. Overall, my target is to win £50,000 in 12 months from gambling. As you will see from my risk and capital financing page, I need to generate around £10,000 to break-even over the course of the 12 months……..

My Background

So, anyone reading this is probably asking themselves, what makes you different from others who have tried and failed at gambling? Well…..

Unlike most other gamblers, I started my gambling education when I was only 4 years old! My Grandfather was a very keen gambler who seemed to make it his role in life to teach me everything about gambling before he sadly passed away. I was sent to Nursery School with examples of Yankee bets which had produced 4 winners and I was asked to calculate the amount that would have been returned. Obviously, this was before the days of me being able to work calculators or Excel, so I had to manually calculate the returns and show all my workings (great help for later in life when I was passing my Higher Maths exams with an A* (achieved 98% in my Prelim – Highest in Scotland that year!).

As well being able to count up winning bets from the age of 4, my Grandfather also taught me how to read the form book. My Grandfather was a great fan of the Racing Post and I was always fascinated by the amount of data that was produced in the paper on a daily basis. We would sometimes spend a whole day during my summer holidays analysing the form of a particular race before trying to come up with our idea of a winner. Obviously, by the time our analysis was finished, the race was over and the winner was ‘home and hosed’ but it taught me valuable lessons in form reading.

From about the age of 5-10, I was given an allowance of £1 a day to gamble on the horseracing. I would come home for lunch, study the form for 30 minutes, and then walk my Grandfather to Ladbrokes while he dropped me off at school. My Grandfather always said that this gambling was never about winning, it was all about learning. Looking back, he taught me more about horseracing form than most people would ever know in their lifetime. I was only 10 at the time!

From about the age of 10, I got really interested in bookmaking and how they made their profits. My Grandfather would play a game where he would get me to price up football games on a Saturday. After a bit of practice, this became too easy and I could basically compile odds similar to bookmakers. I would vary the over-round depending on my view of certain games and it worked fairly well.

We then moved on to making up our own books for horseracing. I remember thinking at first how complicated this was and I had some long afternoons trying to price up 20 runner handicaps on the flat. Remember, I was doing all the odds calculations and percentages on paper, so it was fairly tricky. With Excel nowadays, I can price up a book for a race in 60 seconds.

At about the age of 12, my parents split up and I got involved in a bit of a custody battle between my Mum and Dad. Consequently, I was banned from gambling on horseracing (didn’t look good for my father in court when they heard I had a great ante post wager on Flakey Dove in the 1994 Champion Hurdle!).

Once things had settled down and I was staying with my Dad on a permanent basis, my Grandfather soon got me back in the swing of things. I could have opened a bookmaker aged 14! Soon after, my Grandfather died and my gambling tuition suddenly came to a grinding halt. I spent each summer holiday from age 15-18 in a local William Hill and I was off school nearly every two weeks in the afternoon as I was sick (watching racing on TV).

Stopped Gambling (Aged 18)

Fortunately, I made the decision when I reached 18 that I would stop gambling. I was fortunate enough to be able to attend high-school when I wanted (when there was no racing on TV) and still achieve very good grades. I have always excelled at numerical subjects throughout my school life mainly due to my early education in counting up winning bets.

I got with my current girlfriend (Denise) in my final year at school and we both went on to university to study financial economics. The decision to give up gambling was made on the basis that I had other more important things to get done in my life and I always knew I could return to it at a later stage.

In 2006, I logged on to Betfair out of curiosity and was amazed by what I could see. Like anyone who understands betting, the thought of being able to bet on markets with an over-round of only 101% seemed like a dream. I quickly purchased a training manual and decided that I would teach myself Betfair for 12 months. Unfortunately, due to Finances being tight and moving to a large house, I knew that I couldn’t gamble with real money. Therefore, apart from very small stakes betting (my overall account with Betfair at the moment shows a £150 loss over 18 months), most of the betting I undertook was hypothetical in Excel. I would decide which bets I wanted and recorded them in Excel.

Over the last 12 months or so, I have started reading the form again and I’m glad to say that I remember most of the things that I was taught in my youth! Again, due to lack of time, I have resisted the temptation to get involved in gambling in a major way. Until now that is…..