Average Loss:Win Size Ratios

just wrote a verbose opinion on this and then clicked wrong button, so I'll give concise one.

the reverse logic of
"most traders cut winners too short and let their losers run which would result in the average loss size being larger than the average win size. "
does not hold
(average loss size being larger than the average win size DOES NOT IMPLY cut winners too short and let their losers run)

Average Loss:Win Size Ratios captures skewness which just depends on the type of bets the trader tends to make (for example whether he tends to profit or lose from goals)

Football isn't a true trading sport in that the price movements are pre-determined, re-setting after suspensions - i.e. goals or significant events. That's why my numbers are from sports where the prices move more gently and genuine trading takes place.

I'm not sure that changes my opinion.
All bets (apart from @ 2.0) are skewed, so you'd expect profits to be skewed depending on the kind of strategy the trader pursues

I'm really looking at a 'proper' trader, who is in and out of a market several times in a game. My theory is that (for example) a novice trader who makes the makes the mistake of cutting his winners short and letting his losers run will see several small sized wins offset by the rarer, but larger sized, loss. His average win size will be a lot smaller than his average win size.

It makes no difference if you typically trade at odds-on or odds against, since a trader is simply trading the movement. 10 ticks is the same whether you back at 1.5 and lay at 1.4 or lay at 3.1 and back at 3.1. The skewed statement refers more to a punter (rather than a trader) who may prefer lots of winners at low prices or the occasional winner at a long price.

I understand what you're trying to get at, I was just saying I'm not sure it's a good target to aim for.

I still think the prices will explain and win:loss ratio (mainly because probabilities are bounded between 0 and 1, causing skew in returns), but if you trade sufficiently small price movements then I'll agree it wont be the dominant factor.

I can't speak for football, but supposing I am purely trading the horses my loss size is more than 3X bigger than my win size, but I'll win about 78% of the time.

In practice I will expose myself to big reds on judgment-based plays and will edge backs, so I don't have a good measurement of this ratio.

My sense is that there is a psychological benefit to someone who on average takes positive expectation bets of winning most of the time. Typically when I evenly red out a losing trade I'll admit I don't understand the market and move onto the next.

Average win:loss size ratios can only be compared properly when set alongside average win:loss number ratios.

Darlo - we are talking about profits and losses from trading events, and the one ratio (not ratios) is for the average loss size compared to the average profit size per market, not per trade. The number of winning or losing trades is irrelevant for this discussion and is not needed. I'm not asking if people are profitable or not or by how much - only how close to 1:1 their average loss size : average win size is.

The number of winning or losing trades is irrelevant for this discussion and is not needed.

I can't agree there. If you are trying to make lots and lots of basically 1.01 trades, then you need a high win:loss ratio. But if you are trying to make the likes of a "double or loss" trade then you need a 50% ratio to break even. So the converse can also apply.

I have a question for you OP:

When you're going about 'trading the movement'  do you aim to:
1 - have an edge on a equal move in price (ie a 60% chance of making 10 ticks versus a 40% chance of losing 10ticks)?
OR
2 - have an edge on the price movement itself (ie a 50% chance of making 10 ticks versus a 50% chance of losing 5 ticks)?


I ask because the way I see it is:
If you are restricted to (2) then I can see why you are interested in win:loss size ratio (since number of wins=number of losses).
If you are trading with (1) in mind then win:loss size ratio is going to deviate from 100% just because of your strategy (and looking at it ignorant of number of wins/losses would be missing out valuable info).

I agree with Darlo:
"Average win:loss size ratios can only be compared properly when set alongside average win:loss number ratios."

I enter a market when it is value to do so and exit (or switch sides) when the value is to do so. In theory.

In practice, I believe I am cutting my winners a little short or letting my losers run a little too long, as evidenced by my average loss size exceeding my average win size.

My theory is that a 'perfect' trader will, over a long period of time, have a win size to loss size ratio of close to 1:1 - but with more wins than losses.

Of course the average win size * number of wins will exceed the average loss size * number of losses for any successful trader, but how much people make is not of interest here, only the ratio of loss sizes to win sizes, which very few people seem willing to share, it has to be said.

"I enter a market when it is value to do so and exit (or switch sides) when the value is to do so. In theory."
So some of your trades will likely have skewed returns (ie type 2 bets in my example).

"In practice, I believe I am cutting my winners a little short or letting my losers run a little too long"
Probably - this is a well known behavioural bias seen when trading/investing (from finance, although generally over >1 week periods)

"My theory is that a 'perfect' trader will, over a long period of time, have a win size to loss size ratio of close to 1:1 - but with more wins than losses."
still don't agree. 

"Of course the average win size * number of wins will exceed the average loss size * number of losses for any successful trader, but how much people make is not of interest here, only the ratio of loss sizes to win sizes,"
If I was you, and I suspected I was making errors and that I should have no skew in profits I would simply look at SKEW (you can calculate in excel) of profits and plot it over time to see if I it was becoming closer to 0.

"which very few people seem willing to share, it has to be said."
I'd share, but I'm not a trader (by popular definition).  I know my average win / avg loss is >1 though (although I have no idea what it is).

During my 3 years full time trading experiences I have following stats:

1. After over 3000 markets i have 72% positive and 28% negative markets
2. My average profit = 82% of my average loss.

In tennis, my main trading sport, I win in about 60-65% of markets and my average win to average loss ratio is very close to 1. Four or five years ago this ratio would have been nearer 0.8 but I am much better nowadays at staying 'at market'.

Looking at it per football match is probably most interesting for me.

For the first quarter of 2013, my average winning match gives me about 88% of the average losing match, and I won on 75% of matches (counting manual trading only). That's was a pretty good quarter though.

Horse racing pre off win/loss 3 to 1 ratio...can't be arsed to work out the figures it would only depress me.

I think it's actually a very interesting topic. I am going to have a closer look at my figures...

It is an interesting topic. However, I've done the reverse of the OP hence my question or debate that you need to know the ratio of wins:losses. I've tried to calculate that ratio to try work out my wosrt case red out point. It doesn't always follow but it should allow me to consistently make back any losses, especially if I keep losses to that worst case scenario point.

If you like statistics, you can use Mybetlog.com to track Betfair trading stats/progress ;)

For a large number of mainly inplay football markets my average win size is about 88% of the average loss size, remarkably close to both OP and Investor.

Thin and Crispy, I trade 1) my view of the form, 2) my perceptions of how punters view trainers, 3) my perceptions of market evolution and 4) my reading of data I have for how horses / yards have been backed in the past. My losses are far too big. I may trade the favourite on a market view but otherwise don't touch anything in the top four of the market.

I agree w/ Darlo that you need to consider win/loss ratio for the question to be meaningful. I doubt, though, that a bettor can suppose that his given win:loss number ratio, given win:loss size and history of holding onto e.g. 20% of his average trading win can determine his strategy for playing markets. One inference might be that he should bet more, because he is on average a winner; with a positive expectation per bet he should increase his stake. But the prices won't always be there and individual markets will have their own specific characteristics that determine how they should be played.

"I suspect that most traders cut winners too short and let their losers run" I've seen this comment before and I just don't like it, it makes no sense. I think it must come from people who bet who don't seem to like traders. It basically seems to say if you trade and you make a profit then you will make a bigger profit if you just stopped trading out and let everything run and so bet instead of trade.

It's also making a generic statement that whenever you trade out you are giving away value. Hmm so where was that value on the Liverpool v Man U game? Well i had a position at 17 minutes so that was ok but look I traded out on 34 minutes, ah there's the value on the other side of course, if only i'd seen that and not traded out. Crazy.

The statement "I suspect that most traders cut winners too short and let their losers run" is equivalent to saying that position takers stake too much on losses and not enough on wins so if they could just master their staking system then they could really become successful.

If you really want to know if you are trading out too early or not, just record all the potential profits if you had let all your positions run and compare with your actual results. I looked at this on pre-match trading for football as I was cutting a lot of positions short on my opinion on what I thought prices would do and I looked at how I compared with if I let the prices evolve and traded out right on kick off and I found that my profit would have pretty much the same.

U.A. - You are making some false assumptions. There is no suggestion that anyone should stop trading and become a punter, nor do I imply that every time a trader exits a position he is giving away value. As I mentioned earlier in the thread, (third post), football is not a trading sport in the sense that (for example) basketball, cricket, and NFL are, so your sarcasm on that sport is wasted.

Novice traders cut winners short and let losers run too long. It's the single biggest error they make. The premise of my opening post is that not many of us become expert enough to totally erase this tendency. It does not say anything about staking size or strike rate.

Your suggestion to review how all positions would have turned out had they run is presumably (my turn to presume) another attempt at humour. When you trade in-play, and are in and out of a market maybe 40 times in a game, this is not only nigh on impossible, but also ultimately pointless. A trader takes a short-term position and has a quite different mindset, and probably stake size, to someone planning on a punt.

The data that others have contributed does tend to confirm my view that the better traders will have average win sizes close to average loss sizes, and the best will have high strike rates (60%+) Given that a novice trader will have a low win size:loss size ratio and a lower strike rate, it is perhaps a useful indicator to ourselves to see how we are improving.

The much respected Bayes said that prior to 2010 (trading tennis), his win:loss ratio was 0.961 (Strike Rate 62.6%) whereas now it is 0.998 and 62.4% respectively. 0.961 is a lot higher than most of us and 0.998 is excellent. A couple of others, Investor2 and jptrader both reported a ratio of 0.88 which may be more typical, with a strike rate of 75% for Investor2.
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http://green-all-over.blogspot.co.uk/2013/09/ratios-and-risk.html

Perhaps U.A. has some numbers to share?

Hello there cpfc4me how's it going.

You say that football is not a trading sport and my sarcasm is wasted. Perhaps in this instance then maybe Investor2 and jptrader's figures are wasted and you shouldn't be referring to them.

My viewpoint is that if you place a bet and then a counter bet when a game is in play, then provided some kind of action has occurred on the field/court in between those 2 bets then you haven't really traded at all you've simply made a bet. Your bet being that the match/event will evolve in a particular way, and if it does then you win and if it doesn't you lose (in a spread betting kind of way). True trading in my opinion is based on price changes pre-match, or in periods when no action is occurring in the event. Of course many people will disagree with me and that's fair enough.

What determines whether you are a successful in-play trader (I use the term in your context) is whether, overall, the bets (determined from your entry and exit point) you are placing are value. Novice in-play traders will enter and/or exit the market at the wrong time.

I still don't like the term, sorry if that offends you, I just find it a bit meaningless. Like you said you are in and out of a market umpteen times, so there is no way of measuring it. I prefer to measure my performance by profit i am making in relation to how much is in my account and how much time/effort I am putting in. Actually to be honest I just look at whether it is worth me doing it or not/and whether i have the inclination to do it.

Let me know what numbers you would you like me to share, and I will decide whether I would like to disclose such information (if I have this info). By the way i'm afraid all my work is football orientated.

Cheers

When you trade in-play, and are in and out of a market maybe 40 times in a game, this is not only nigh on impossible, but also ultimately pointless.

I don't know if I've misunderstood this, but in tennis and ODI/T20 cricket, I can regularly go in and out of a market 100+ times. And it's not pointless.

Darlo - I meant that the exercise of determining how your initial entries into markets would have fared as punts is pointless. Obviously trading itself is not pointless, and I picked 40 as a number at random because that is a rough average for myself in an NBA or NFL game.

Sep 15, 2013 -- 6:08PM, cpfc4me wrote:

Darlo - I meant that the exercise of determining how your initial entries into markets would have fared as punts is pointless. Obviously trading itself is not pointless, and I picked 40 as a number at random because that is a rough average for myself in an NBA or NFL game.

I wondered if you meant something like that.

I keep track of something quite close to win size : lose size ratio - my average winning/losing matched bet liability. It can be a good measure of whether your bets are being snapped up or if you are betting too big for the market.

If your winning matched stakes (or liabilities, for lays) are much smaller than your losing stakes, it shows that people are reliably grabbing your money when you're wrong but leaving some of it on the table when you're right. Not a good sign - could be caused by:

- Faster bettors, grabbing my bets when they react to something quicker than me
- My bet odds were too greedy, asking for worse odds might get the winning bets matched better
- Stakes too big for the market. Normal trading wouldn't fill the bet but only when my bet is 'value' to others does it get fully taken (e.g. fast picture people, or nasty inside-knowledge horse racing people, perhaps?)

Figuring out exactly what's going wrong when your losing bets are bigger than the winning bets is tricky, but spotting that it is happening in the first place is a good thing. (n.b. you could still be in profit with smaller winning bets, but it's a hint that you could make more profit by adjusting your strategy)

Yes Mr Magoo, I find that very useful as well.

In 2007, I won on 97% of matches and my avg win was 20% of my avg loss, so I've certainly moved toward a more equal ratio.

And here is another stat:
Year    % Win Days
2007    95.83%
2008    87.99%
2009    85.16%
2010    79.10%
2011    74.38%
2012    72.20%

U.A. Thanks for your contribution to this discussion. You are correct that I am guilty of double standards by dismissing football as a true trading event, by including numbers from that sport, but I am short of data!

You wrote "My viewpoint is that if you place a bet and then a counter bet when a game is in play, then provided some kind of action has occurred on the field/court in between those 2 bets then you haven't really traded at all you've simply made a bet." "Some kind of action" will always have taken place, even if it is only the clock ticking. The odds on 0:0 will trend steadily down to 1.01 without any goals or significant events taking place. In a sport like basketball, NOT scoring on a possession is almost as significant an event as scoring - sometimes more so! To trade, you need to first place a bet bet. It's only when you hedge your position, locking in a profit or a loss or a wash, that your bet becomes a trade.

I prefer to measure my performance by profit i am making in relation to how much is in my account and how much time/effort I am putting in. Actually to be honest I just look at whether it is worth me doing it or not/and whether i have the inclination to do it. My profits are not related to the balance in my account. as I have mentioned many times on my blog, I have only ever made one deposit, and have no intention of ever making a second, so I tend to keep too much relative to my stake size, and only withdraw when I have a good reason to do so (usually Mrs Cassini. asking for new windows, wood floors or a holiday). I guess if you are someone who starts each day with a set amount in the account and tops up or withdraws each day, then your profit / loss relative to bank size means something, but for most of us it's probably not a useful measure. We all keep track of our profits, or should, but profit size doesn't tell you how good a trader you are.

The factor of time you mention is important, and often overlooked. Trading for four hours and making £100 is (depending on opportunity cost) arguably not as good as making £25 in ten minutes. The problem I have is that I never know which ten minutes will present the best opportunities!

As for numbers, how about sharing your average win size and your average loss size per market. The closer to 1:1 you are, the better a trader I suggest you are.

"The closer to 1:1 you are, the better a trader I suggest you are."
Why 1:1?  Why isn't it the higher the better? 

I'm at 1.13 over 3k matches.  My trading involves placing a bet, then hedging right before the final whistle at 1.01 or 1000.

"cutting my winners a little short or letting my losers run a little too long"
Nowhere does this statement imply that winners and losers should be of similar size (which is presumably where the 1:1 ratio comes from).

Sep 15, 2013 -- 10:37PM, TheInvestor2 wrote:

And here is another stat:Year    % Win Days2007    95.83%2008    87.99%2009    85.16%2010    79.10%2011    74.38%2012    72.20%

was that due to market wising up, or you taking more risk? i know it will be a combination of both, but was wondering if you can identify the more significant of the two?

Hello there cpfc4me.

The reason why I said "some kind of action" is that there are periods when there aren't. What I really meant is things like half time, quarter time or after any good play in American football when there are 5 minutes of whooping and high fives.

Sorry to be argumentative but your profits are related to your balance in your account. In absolute terms I feel strongly confident that I could make more profit the more money I had in my account. It's easier to make £100 in a week when your account has £20,000 in it as opposed to £50. Likewise the lower your account the easier it is to increase it by higher percentages. This is the context that I was referring to, i'm not quite sure how you are interpreting it.

As for my figures (profit in relation to my loss).
Jan-Dec 2007 - .9649
Jan-Dec 2008 - .634048
Jan-Jun 2009 - 0.53201
2010-2011 season - 0.46173
2011-2012 season - .050671
Overall percentage .57604

These are based on pre-match football trading. I think the reason why there is no 2009-10 season is that I was live trading more heavily and wasn't able to split the figures between pre-match and Live trading. I had mastered this by 2010-11 season. Don't have any figures for in play. This may be regarded as rubbish by many but if I had left my bets and traded out at kick off then my overall profit would still be the same. I think the reason why these percentages are low are that I am able to trade out of a few games with a minute profit rather than no profit-loss when the prices don't really move so this skews the figures. Fortunately my goal is profit rather than opinion/approval and I have made a profit for every season so far so I will continue until this changes.

Anyway this got me thinking in the difference between my trading (pre-match) and yours. With mine i'd mainly be in and out of the market 1, 2 maybe 3 times whereas you would be more like 10, 20, 30. But I assume that you only look at the overall profit for the match rather than each individual trade, as you mentioned before how can you look at each one, it's just way too much effort. So with your trading it could be entirely possible that your one profit or loss for the game could be made up of a whole load of tiny profits and a few big losses. E.g. you could have a profit of £20 for the game but that could have come about from 30 £2 wins and 2 £20 losses. I'm sensing this 1:1 ratio is more important the larger the number of trades you average per game.

Anyway as I have divulged some information here is a quick question for yourself and anyone else who fancies answering it. When you place your bets (with a view to a counterbet) what rational do you use. Do you have statistics which will indicate that the prices may be a bit out, is it your intuition of whether you think a price is good or bad, or is it your feeling on which way the game is going to progress (momentum). Or is it something completely different.

Having a feeling or following what looks like momentum will get you in trouble long term in my opinion.  Momentum is overrated, I have lost count on how many times a tennis player has won a set 6-0 or 6-1 to level a match and then comes out and is broken to love in the very first game in a 3rd set.

^ new set, new start.

U.A.: Do you have statistics which will indicate that the prices may be a bit out, is it your intuition of whether you think a price is good or bad, or is it your feeling on which way the game is going to progress (momentum). Or is it something completely different. If you watch and trade enough 'genuine' trading games, you instinctively know when a price is wrong. As I did in December 2008, I again recommend Blink, by Malcolm Gladwell.
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http://green-all-over.blogspot.co.uk/2008/12/blink.html

IF you want a sport with statistics, there is none better than baseball where the game has a long history, and the probability of winning a game from every game state is known with some accuracy. The Book - Playing The Percentages In Baseball" by Tom Tango, Mitchel Lightman and Andrew Dolphin.

Regarding momentum, it is something that is key to some sports, especially (in my opinion) basketball. If you can know, or at least know more than guess, when the momentum will change, that is a huge edge. There are certain events in a game that I have written about on my blog many times which are momentum changers.

The lack of momentum in football is probably the big reason I don't consider it a true trading sport.

Tennis is, but to Lakers fan KBEFROMDOWNTOWN I would suggest that psychology (a key component when trading a single player sport) plays a big part here. Anyone who has ever played tennis knows that it is hard not to mentally concede a set (especially an early one) if you are two breaks down, and conversely it is hard to maintain focus after winning a set easily. I would be surprised if this was not already factored in to the price at the end of the set. When someone writes "I have lost count of how many times..." I presume they long ago opposed their initial thoughts and are making money from the trend they have observed. I sometimes wonder.

Insanity: Doing the same thing over and over again and expecting different results. - Albert Einstein

cpfc, knowing when the momentum is going to change would be the equivalent of finding a pot of gold and a huge edge.  You can never know when a momentum shift is going to happen and it is total guesswork and fluke if you happen to nail it on a few occasions.

I agree that single player sport is completely different to team sport in terms of psychology,some players will conceded a set and put more effort in a deciding set but the player who has just cruised through the set is the one who mentally drops off in the decider.

I don't think it matters if it is a team sport or single player sport when you are talking about momentum, you can never predict it happening otherwise this game would be so easy.  American sports are so unpredictable, you can have a basketball team go on a 20-2 run but you can't predict when this will occur.  You could have a team in the red zone that has driven 90 yards, only takes a pick 6 and that momentum you have predicted has been flipped back in the other direction in a blink. 

Each to their own, just my opinion.

Nobody could ever predict every momentum stopper, that would be ridiculous. Predicting patterns that happen over and over again for percentage plays is entirely different though. And while that's not my game in the slightest, I don't doubt that is's possible.

KBEFROMDOWNTOWN Of course no one knows for sure when momentum will change, and by saying "know more than guess" I meant that you are right more than you would be by pure chance. If you watch enough games, it is relatively easy, well - at least not impossible - to spot when a momentum change may be coming, and I have mentioned several clues / pointers previously on the blog. It is certainly no fluke when the same thing happens night after night, and it is certainly not “total guesswork” as you say! You may want to look up Bob Voulgaris who specialises in basketball if you doubt that this is one sport that an expert can gain an edge on.

Turnovers happen in the NFL and, like any infrequent event, it is hard to predict them, but some teams are more vulnerable to them than others, some teams are better at forcing them, some teams hold leads better than others, and some game states are more likely to see a turnover. You just need your estimate of the probability of something happening to be correct more often than is implied by the odds at the time.

When I am wrong, I should cut my losses, when I am right I should let them run. No one is always right. I'm certainly not always right, but I am right more often than I am wrong, which brings us back to the original topic of this thread which is my theory that the higher the average win size is to the average loss size, the better a trader you are. I have yet to read anything that suggests this is wrong.

"I have yet to read anything that suggests this is wrong."

Really? I'm yet to read anything which suggests it is right.
Why isn't it the higher the better? (ignorant of win %)

Bob Voulgaris, not heard that name in a while.  He was very successful but even he got to a stage where he had to look at new approach as he found his edge was no longer producing the goods.

Darlo Bantam, I don't predict patterns but use a percentage play in tennis where opinion is taken out of the equation and just let the numbers do the work built around an attainable strike rate.  I use a similar method with basketball.

"Turnovers happen in the NFL and, like any infrequent event, it is hard to predict them, but some teams are more vulnerable to them than others, some teams are better at forcing them, some teams hold leads better than others, and some game states are more likely to see a turnover. You just need your estimate of the probability of something happening to be correct more often than is implied by the odds at the time."

Turnover statistics change from season to season, Quarterbacks gain healthier Offensive linemen during a season which bring turnover stats down, bad weather makes for more errors in a game.  Chicago bears have been known for the amount of turnovers and punt returns over he years which are big game changers.  What I am saying is stats change game to game, week to week and no matter how much you look at teams who have high turnover stats you won't be able to estimate the probability of this happening.

Just my opinion but good luck.

The closer to 1:1 you are, the better a trader I suggest you are

This remark perhaps means more for two- or three-outcome sports.

When I said that my average loss was about three x the size of my average win, I was speaking per runner. I may have seven winning trades and two losing trades in a race. With trading, I wd in principle want to take my expected win as a profit after the end of every event, since I'm using trading to smooth out my gambling.

Yes, I am talking primarily here about two outcome sports. Football isn't a trading event in the sense that tennis, basketball etc. are.

JLivermore: The nature of trading in the context of this discussion means that the average win size is unlikely to significantly exceed the average loss size. It may be a little over 1:1 but for most traders, a ratio close to 1:1 would be excellent.

ok, one more question:
Do you do more often speculate on (a) the outsider shortening?  Or (b) the favourite shortening?

Jesse: If you read my blog, you will know that for me, typically the most profitable strategy is to lay the leader when the price has been driven too low. When you watch enough games, you develop a sense for when the price is wrong, and in sports like basketball or NFL, the greed that has driven the price too low soon turns to fear when the leaders falter, and that 1.0x bounces back up allowing you to lock in profits. When trading in-play, an early lead is seductive to many people, and I find the value is more often in opposing them. Watch a NFL game and see how the price almost always bounces back after the first touchdown. Trading the favourite to shorten can of course also be value, but psychologically I much prefer to have a small downside and large upside.

I do read your blog, but only started following recently.

This is interesting:
"I much prefer to have a small downside and large upside."

This does imply to me that you should have an avg win (large) to avg loss (small) ratio above 1.  I suspect that you will counter than in the price moves you are dealing in the returns will be symmetrical, but I suspect a subtle effect exists (as it does with share prices which cannot go below 0).

Jesse: I suspect I probably should have a larger average win size to loss size ratio too, which is one reason I started this thread. I wanted to see what the numbers were for other similar traders. I suspect that I cut my winners too short and let my losers run too long which is the single biggest error novice traders make, even though I no longer consider myself a novice.

My theory is that a 'perfect' trader will, over a long period of time, have a win size to loss size ratio of close to 1:1

I dont think it's good aproach. Why not win 90% of markets and make average profit as 60 - 70% of average loss?

I try to explain why in my opinion average win size to loss size ratio 1:1 is quite imposible in most of cases.

You are right, that cutting winners and letting losers to run is main reason of this win/loss ratio below 1, but I see one more very important reason (based on my experience).

This reason is tendency to close market with profit (even very tiny). This approach causes that we have more won markets, but average win/loss ratio decreases. We can easily increase this ratio by leaving markets close to 0 as markets with small loss not small profit.

Mardock - I'm not suggesting traders can "aim" for a ratio close to 1:1, only that over a long period of time, the better traders will have a number closer to this than less experienced or talented traders. I have yet to see any evidence that contradicts this theory, although admittedly not too many traders seem willing or able to share their numbers.

Your example of closing a market with a tiny profit is indeed exactly what new traders tend to do. They take a position, the market moves in their favour, and they can't wait to lock in a profit. The result is lots of small wins, but the same trader will let a bad move go on for longer. Hence the larger average size of losses to wins.

Your example of closing a market with a tiny profit is indeed exactly what new traders tend to do. They take a position, the market moves in their favour, and they can't wait to lock in a profit. The result is lots of small wins, but the same trader will let a bad move go on for longer.

Not really. I meant something completely different but I already think 20 minutes how to explain it in english and I have no idea so i give up -_-

By the way, this might also be relevant to the discussion:

I take on more risk when I'm winning than when I'm losing. In 2013 my avg winning week is 4.24x my average losing week, and I win in 63% of weeks.

2012 winning week 1.71x losing week winning 74% of weeks

Over time I'm getting more extremely skewed winning weeks and my % winning weeks moves toward 50%.

2009 for example I completed 52 weeks without a loss (including 1 inactive week from dec 2008 to dec 2009). For the year I had 98% winning weeks (1 loss in December), but that one loss was 3x higher than my average winning week.

Sep 24, 2013 -- 6:16AM, cpfc4me wrote:

Mardock - I'm not suggesting traders can "aim" for a ratio close to 1:1, only that over a long period of time, the better traders will have a number closer to this than less experienced or talented traders. I have yet to see any evidence that contradicts this theory, although admittedly not too many traders seem willing or able to share their numbers.Your example of closing a market with a tiny profit is indeed exactly what new traders tend to do. They take a position, the market moves in their favour, and they can't wait to lock in a profit. The result is lots of small wins, but the same trader will let a bad move go on for longer. Hence the larger average size of losses to wins.

Which comes back to my initial point about win:loss sizes being relevant to win:loss numbers.

Which is the better trader?
One who makes lots and lots of small wins, one or two big losses, and comes out in profit.
One who makes a similar number of wins to losses, with the wins slightly higher than the losses, and comes out in profit.

They both can make the same profit levels for the same risk.

Hello there cpfc4me. You state that  "When you watch enough games, you develop a sense for when the price is wrong". You also state that  "I suspect that I cut my winners too short and let my losers run too long".

Why do you think that you can sense a price that is wrong when you place your original bet but not when you place your counterbet. Especially if you conducting a large number of trades on a game. Or do you feel that even though the price is wrong you just can't help but place the counterbet. I find this concept particularly interesting in light of the fact that you don't trade football and that you are referring to markets where there isn't a sudden massive price change. I.e. there shouldn't be the fear of something like a goal which would mean a big price change and consequently a big loss.

Why do you think that you can sense a price that is wrong when you place your original bet but not when you place your counterbet.

Because I am not totally detached when it comes to trading. When I am out of a market, with no exposure, it's relatively easy to identify a price that is wrong and enter the market, and if I enter with a small stake, it is easy to override the emotion of fear and exit at the right time. What often happens is that in the heat of battle, there's no time to calculate Kelly, so I end up with a higher risk than I am comfortable with. As I mentioned in my rather amusing When Bets Go Wild post of June 2011, I know I'm in too deep when my breathing changes. It's  a combination of risk and value, so a larger amount my not trigger the feeling of panic if the value is that much greater. In these circumstances, the overriding emotion is fear, so the tendency is to at least look to reduce the exposure somewhat, even if this is as the cost of giving up some value.

As I wrote in December 2011, [Prospect Theory], quoting from a study by Tversky and Khaneman, who "found that contrary to expected utility theory, people placed different weights on gains and losses and on different ranges of probability. They found that individuals are much more distressed by prospective losses than they are happy by equivalent gains. Some economists have concluded that investors typically consider the loss of $1 dollar twice as painful as the pleasure received from a $1 gain. They also found that individuals will respond differently to equivalent situations depending on whether it is presented in the context of losses or gains."

The last piece is interesting. Depending on where your money is, you see games very differently. If you want a team to score a basket with five seconds left, your thoughts during the time-out tend towards the improbability of it. "They're never going to score", but when you are on the other side of the same game, your mind keeps telling you that there is no way they can fail to score. That time-out gives too much time for thinking, and the cost of giving up a little value but guaranteeing a profit either way can often seem worth it. In a way, this trading out at a less than optimal price is adjusting the risk to a more Kelly like level, but there's a 'peace of mind' factor in play too.

Even though this is a hobby, I don't like to lose, and while I would like to think that I am a cool detached trader, I know that I am not, and giving up a little profit to ensure a less stressful life and smooth out the ups and downs of trading seems to be worth it. In my opinion, to be able to trade optimally, you need to remove emotions from the picture, but that's easier said than done.

And incidentally, price swings can be quite extreme in sports other than football, especially later in a game. The fear of giving up a late, game-changing score, is very much alive and well in many sports.

Hello there cpfc4me.

It sounds to me like it is more than a hobby, especially if you are talking overstaking and with emotions of fear.

Just out of curiousity, if there are other people trading and going through similar emotions and processes then how do you know that your price is wrong when you trade out. Aren't there lots of people doing a similar thing but in reverse, i.e. people looking to trade out on opposite back/lay price to you. Wouldn't this naturally draw the price back to the correct price.

Finally if you are staking more than you would be if you were trading in a different way then is it not possible that if you were to trade the way which you perceive to be ideal you wouldn't be making any more money because the improvement in profits is offset by the reduction in funds. Which one makes you a better trader. Neither if the profits are the same.

Hi U.A. - Yes, this is definitely very much a hobby for me. The nature of the activity and the risk of potential regulatory changes, (a ban of in-play betting for example) mean that it would be highly irresponsible and short-sighted to give up a career and all the benefits associated with one to trade full-time. Evenings and weekends provide more than enough opportunities, especially as I don't touch horse racing.

I don't know for sure that the price is wrong when I trade out, but I suspect that this is what the average loss size to average win size ratio tells me. I don't believe that how good a trader you are can be measured by profit size alone. Someone making £200 is not necessarily a better trader than someone making £100. There are other factors, bank size, strike rate, profit per hour etc.

CPFC. Is it just the U.S sports you play?

'I don't believe that how good a trader you are can be measured by profit size alone. Someone making £200 is not necessarily a better trader than someone making £100. There are other factors, bank size, strike rate, profit per hour etc.

If a punter is making £200 and the other is making £100 I would want to know how he has made that profit so don't think bank size is a reason one punter is better than another. It's all measured against the risk involved in my opinion.

Hello there cpfc4me. Still sounds more of a part-time job than a hobby to me, but as I am an honest man (honest), I shall take your word for it when you call it a hobby.

Yes of course things like bank size and effort and risk taken (although I think risk taken diminishes the longer the period you take when looking at your profits) are important in determining how good a trader you are. It is not based on profit alone.

The point I was trying to get across in my last email is what would happen if you took your existing fund and traded in amounts that you were comfortable with and traded out when you felt the prices were right rather than out of fear how would your profit stack up. Looking at it in this instance, the funds you are playing with are the same, the amount of effort would be the same, as you would still just do the same games, and the risk would be similar as you are betting within your comfort zone as you were before.

If you really really want to know if you are throwing away value out of fear and whether you cut this out you could be a better trader, and if this is just a hobby, then just try trading this way for a while and see how the 2 techniques stack up. See how your profits compare.

For what it's worth I know exactly what you mean about not wanting to lose. I know that everyone who bets doesn't want to lose but i suspect in your case and probably mine there is more of a pathological fear of losing. It's a double edge sword on the one hand you feel that it inhibits you and your profits but on the other, you feel comforted by knowing that this fear in a way keeps you in profit and stops you going down that slippery gambling slope.

Whatever you do it has to be within your comfort zone, the art is to find the technique that maximises your profit whilst being able to work in your comfort zone. You can't look and say if i did this I would be a better trader if it means working in a way that you are just not comfortable with.

U.A. It's a hobby that brings in a little extra cash. I certainly don't view it as a job. Some people play video games and X-Box in their non-working time - I play with numbers and probabilities. It keeps me out of trouble.

One issue I have with trading is that when I see a price that is clearly wrong, money looking to back at say 1.1 when I feel the correct price is 1.2, it's very hard to just take come and leave money on the table. At low prices you often see thousands trying to back - I suspect because people feel they need to make it 'worth it' and short odds. So rather than take 10% of the say £10,000 (a risk of £100) I tend to take the whole £10,000 - excellent value, but the risk of £1,000 still makes me a little uncomfortable. I do the same with putting in lays at low prices too, but here my risk is more controlled of course. Anyway, when the price moves up to 1.12 / 1.15 I suspect that I am too anxious to offload much of that risk, and do so at less than than value, rather than wait for the 1.2. It does give peace of mind, regular breathing, and a lowered heart rate, but it's not what an expert trader should be doing. Yes I could always just risk that £100, but even with laying off at bargain prices, I am still better off risking the bigger amount. Just not as better off as I could be, and I still think the ratio of median win size to loss size is a good way to measure this efficiency.

KOBEFROMDOWTOWN: I bet on lots of sports, but trading is mostly the US Sports and basketball these days. In my opinion, it's easier to find value in these markets in-play than any others. Cricket bores me unfortunately, as does horse racing, which along with single player sports, (e.g. snooker / tennis), has the additional disadvantage that it can be fixed too easily.