Trading software

Wednesday, September 28, 2011

The magnet effect

Done a quick round of trading just there - only had an hour as I was working today and I've a few things to do tonight. All went well and I earned just under seventeen quid in that hour. Not huge of course, but pennies make pounds.

I'm reluctant to call it a strategy, but I was using a style tonight that I sometimes refer to as the 'magnet effect'.

I use this sometimes and it has proved useful in the financial markets too. The idea is that people are drawn to round or significant numbers (especially traditional punters) and usually set the minimum/maximum price that they'll take at such numbers. For example, you might hear of someone backing a horse and saying something like "I hope I get 4/1 but the lowest I'll take is 7/2"

In that case, 7/2 (4.5) is the 'anchor' price in that persons head. He's unlikely to say that he'll take a price no lower than 71/20 for example (4.55). Many other people may also have this anchor - so it kinda acts like a bit of a magnet. If the price was 4.6 and slowly shortening, I'd be fairly confident that it would hit 4.5 and maybe bottom out or flatline for a while as people take their prices (and won't go below).

It works the opposite way too sometimes.  A price might be trading in between 7.0 and 8.0 for example. But if it's rising slowly and hits say 7.6 or 7.8, I'm usually confident it will be dragged up to the round number of 8.0.

This is why I call it the 'magnet' effect as once the price goes past a certain tipping point, it is 'dragged' to the rounder number, almost like a magnet has a pull on it.  Sometimes I'll get in with a quick scalp and lay at 7.6 and back at 7.8 as you'll often find a queue at the round number.

Of course, you have to be careful on Betfair around the 'crucial' prices such as 2.0, 3.0, 4.0, 6.0 etc as the increments change at these points.

I'm not saying it's a fool proof strategy, it's certainly not - but it's worth knowing that a lot of punters still like round numbers. Perhaps it's something we have more of in Ireland and Britain stemming from the traditional non-decimal prices?

Anyhow, here's today's P&L:

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