Tuesday, 29 July 2008

My knowledge of form - help or hindrance?

I’ve really struggled with this over the past 5 months. Being honest, form knowledge is slightly misleading in many races. It’s more the concept of value that I adhere to more than anything as this is inherently built into any successful gambler.

For example, take a horse that is trading at 5.2 on Betfair and 4/1 on the course. I think it has a 20% chance of winning the race in my opinion based on the strength of the opposition and the horse’s recent form.

At the moment, this horse is priced correctly and I wouldn’t look to trade this or bet on this. However, as is usually the case with anything I fancy (partly joking!), it starts to drift on Betfair. As it drifts on Betfair, I see it remains a solid 4/1 chance with bookmakers.

This is where the trouble starts for me. Now the horse is 6.4 on BF and still 4/1 with bookmakers. I see two things here. Firstly, it’s a value price on Betfair now as bookmakers aren’t offering these odds, so the law of arbitrage tells me that no one is going to bet on this with bookmakers when they get better odds on BF. It must shorten surely?

Secondly, 6.4 is a good price for me to bet at since I think it has a 20% chance of winning but 6.4 indicates just over a 16% chance of winning. Hence, if I am right and I think it really has a 20% chance of winning, I should bet on it. If my opinion is the market consensus, this must shorten from 6.4 surely?

Here, no matter what the indicators are telling me on Betfair, I would bet on this horse and hope to lay off lower pre-race. Say I put £100 win at 6.4. It continues to drift on Betfair and reaches 7.4. Interestingly, it drifts from 4/1 to 9/2 on the course now.

What should I do? Well, about 1% of me looks at the market indicators on Betfair and says “Graeme, this is looking very weak and could reach 10, exit the bet for a guaranteed loss NOW”. However, the other 99% of me says “Graeme, if this was a bet at 6.4, it’s an even stronger bet at 7.4 and lump on it”.

Now, I have a dilemma. I face this at least every second race I trade at the moment and as last month showed, when I get it wrong, the consequences are a massive loss!

What do I do? Do I bail for a loss and assume that the Betfair market has priced it correctly and myself and the bookmakers are wrong or do I stand my ground?

I have no rules or procedures here and I usually end up just going with a ‘gut’ feeling. If I really think I am right, I will increase my investment on the horse and end up digging a hole for myself. Many times, I stand my ground here and increase my stake which that helps change the direction of the movement and I end up with my riskfree bet. Too often last month, I ended up with far too much on the horse and it continued to drift causing me to take a substantial loss before it went in play.

Some of my largest wins on Betfair have come when I’ve backed a horse that has drifted and I’ve continued to back it. It then changes direction and I end up with a massive riskfree bet as it reduces in price past my opening price.

The above scenario is a simplified version of what happens many times in practice and importantly, it happens very fast at times. When drifters drift on Betfair, they sometimes go wild and I end up with a £200 win at 13 which I think represents value but the horse is trading at 22. Here, I lay off some and take money in running and when I’m right, I get out and make a profit and when I’m wrong, I lose a fair amount.

To get back to Stan’s initial question, does my knowledge help or hinder me? Personally, with my current strategy, I’d say it hinders me and that’s what I’ve got to change. I need to change my strategy to fit my knowledge. To try to forget about racing form and the concept of value is just silly and doesn’t make any sense. I need to find a strategy that allows me to maximise my knowledge.


Alistair said...

Hi Graeme,

This is an excellent post as it gives an insight into your thought process pre-race.

To refer to your example, you're right, as the horse drifts, it becomes greater 'value' if we assume your assessment of it's chances are correct. However, this is were I believe your thinking is fundamentally flawed.

That perceived 'value' is only relevant when the horse is charging across the finishing line. That 'value' is of absolutely no value in the pre-race market.

The only time that it might be of interest pre-race is if every man and his dog has also identified it as value and backs it accordingly. Let's face it though, every man and his dog wouldn't know value if it bit him on the arse.

If you are intent on achieving a free bet by trading the pre-race market then, in my opinion, you need to forget about value and learn to trade the market accordingly.

If you wish to back a horse based on whether it is value or not, then perhaps you should hedge in-running as I suggested in an earlier comment.

If I may make another suggestion...

If your horse is drifting pre-race so that it becomes value, resist the temptation to back it. Wait for that drift to falter then back it. As it comes in again, you can lay it off for your free bet. If it turns quickly and starts to drift again, get out, for a small loss if necessary, and let it drift to a new high where you can back it again.

This will have two benefits:

1. If it starts to steam back in again, you will have an excellent trading opportunity for a free bet.
2. If you let this go in-running with a view to hedging, you know you will be on at the highest possible value.

Sorry to repeat myself Graeme, but from your recent posts it seems to me that you are still trying to apply your form reading to the pre-race markets. I only think that makes sense if everyone else can read form as well as you and does the same thing. I'm not sure it works otherwise.

Keep your form reading for the race - that's where I feel it is best utilised.

Feel free to shoot me down in flames if you disagree with me as I'm hardly in a position to advise anyone on form reading. However, as a layman standing on the outside, I hope I can give you another angle to look at your trading.

All the best


John said...

Interesting thoughts - Knowledge has to beneficial if used correctly.

For me it’s simple – if the market goes against me I was wrong and I should get out ASAP. I like to think I can predict the future but if thousands of other Betfair punters have a different idea to me then an alarm bell should be ringing in my head saying “Hang on, you could be wrong here!”

The markets I trade move slowly so I have the time to exit, re-asses the situation and work out who was wrong (me or the market). If I decide I was right in the end and the runner has a better chance of winning than the odds represent, I will re-enter the market. Usually this will be at a much higher price and I can ignore the 1 or 2 tick loss I just took because my average odds are halfway between the original entry point and the current odds. I’ve ended up with an even better value bet than I had in the first place.

If I decide I was wrong then I accept the few tick’s loss. The important thing is letting the trade run as long as possible on the times you were right – that way you can afford to be wrong far more often than you are right.

Of course that’s easy to say than to put into practice – even more so I imagine on a fast moving market prior to a horse race. With some trading software you should be able to get the bets in quick enough but it’s the psychological part that’s the hardest. However tempting it is to lump more money on drifting odds it’s not the best practice. As Alastair said, if you going to do it, lump on the odds if they start to come back down again – maybe that’s a sign you were right and other’s are coming round to you way of thinking.

All the best,
John @ Flutterfly

Steve said...


I had a thoroughly enjoyable morning reading your blog. I’ve a few comments to make but I’ll put them against the appropriate posting.

After reading this, without stating the obvious, a strategy has been outlined above. You back a horse at what you feel are value odds, if it shortens, you lay off pre-race or in running for a profit.

If the horse drifts, you let it drift and you take your stake in running. You lay part of the stake off at your initial bet odds and the rest of the stake becomes a punt on a horse at value odds (in your opinion).

This then becomes a test of your knowledge against the market. At the moment, the market is beating you since you are not a good trader. Take the market on at your game from now on. Obviously, you will suffer many losses but as long as you feel you are gambling at value odds, you will win in the long-term.

You need to define a clear strategy as at the moment, you appear to be in a muddle.

Great post.


Ps Apologies Alistair, this may be repeating what you said above but I wasn’t sure.

Graeme Dand said...

Hi Alistair.

Thanks for the advice. The reason I posted this was to get views from traders, so I’m grateful for your comments.

In essence, I agree with what you are saying. However, to say that “ ‘value’ is of absolutely no value in the pre-race market” is wrong in my opinion.

One thing I have shown in many races is that by backing a well handicapped horse at a value price, it will shorten in most cases. I have great belief in this. I admit that in non-handicaps, I struggle since I can’t read the form as well and there are more unknowns to factor in, but I still think there is a way to read this type of form and apply it to the pre-race markets. I just haven’t cracked it yet!

I agree that traders don’t know much about form but from what I see, traders react to the market. I want to try to understand first principles of calculating when a horse is likely to drift or shorten. I don’t want to jump on gambles once they are happening. I want to start them!

The drifter thing you discuss is basically my strategy for these horses. However, waiting for the market to turn isn’t easy! Many times, the drift slows and even turns and then I get involved again only to see it continue to drift a few seconds later. I’m working on a strategy for this at the moment, so I’ll be able to cope with this much better going forward I hope.

As you say, I need to use my form for the race. That’s going to play a much larger part in my trading strategy going forward. I have got too bogged down trying to get riskfree every race. I will be gambling on certain races and horses going forward and while this will increase the number of losses, when I win, I should win a fair amount and will cover the losses easy enough.

I really value your comments mate. I’ve really enjoyed my blog in the last week or so as it has helped me clear my mind so much. Much of this has been down to comments that guys like yourself have written, so I’m not shooting you down in flames at all!

Cheers for the comment and good luck for next month when it comes. I’ve a feeling that we may both do much better next month!


Graeme Dand said...

Hi John.

Thanks for the comment.

Again, I don’t want to disagree too much with what you are saying as I agree with the majority of it but many times on pre-race horse-racing markets, it is not “thousands of Betfair punters have a different idea to me”. In some cases, it is a single trader who is manipulating the market and causing my horse to drift.

In this case, he causes the drift, others latch on it, the horse’s odds go wild and they get far too high. He then exits the bet at the peak and pushes the odds down by backing it to exit the bet and it gets back to where it starts!

As you say, I need to try to not chase horses that drift and I’m starting to come around to this now. I agree that I shouldn’t and hopefully, I will stop this going forward.

Maybe I’m just too young and inexperienced but I still think I can beat the market at this game on drifters as long as I cherry pick the horses. Obviously, I can’t back drifters in every race but as long as I back the ones who are wildly overpriced at the peak of their price (or close to it), I can make money from gambling on them in the long-run. That’s going to be part of my strategy going forward from here also.

Thanks for the comment. I’ve had some great advice in the past week or so and I’m enjoying the banter with the readers at the moment.

Good luck for the upcoming F1 race!


Graeme Dand said...

Hi Steve.

lol – glad you are enjoying the posts! I’ve gone a bit crazy with the blog this week but my head was full of stuff, so I wanted to empty it all out on here!

It’s been so refreshing and I really feel in a great frame of mind again. First time in a while if I’m honest, so I’m looking forward to trading again.

I love the quote “take the market on at your own game”. I’ll use it in my next post I think!

I think you have probably really ‘got me’ at the moment. I’m heading exactly to the strategy that you outline. I haven’t written my next post yet but you have already guessed where I’m heading to.

Combining my trading with gambling when I feel I’m getting very good value is where I want to end up I feel. As I wrote in my reply to Alistair, I’ve got too carried away with not losing recently. I’ve lost some of my gambling instincts in the past 2 months as I’ve been so worried about trying to get riskfree and not lose in any races.

Losing is fine as long as you are gambling and getting great value. Trying to trade a horse that’s 30 on Betfair to get a riskfree bet is crazy…. I should just back the thing to win!!!

Overall, great comment mate and I love the fact that you appear to be right on the ball with where I’m going. It’s taken me a while to get here but I’m feeling great now I’m here!

Keep reading and I hope you continue to enjoy the blog.