Trading software

Wednesday, May 2, 2012

€500 to €5,000 challenge

Right, it’s been a while since I took on a betting or trading challenge so it’s time to get my arse in gear and kick on with something new.


Turn €500 into €5000 by trading on Betfair.

Anyone who dabbles in stocks and shares as I do will tell you how difficult it is to double your bank, never mind increase it ten-fold so I guess it is a little ambitious. Actually, it’s very ambitious - ridiculously so. However, I’ve been able to make money on the exchanges in the past doing similar challenges and I’ve nothing to lose by aiming high other than my credibility and honour and reputation; but most of that’s long gone anyway.

Sometimes it’s a bit of fun to set goals and targets; often we can be trading away with no real goal or plan and it can become quite boring to be honest. So whether I win or lose, it should prove lively. I’ll be completely honest with the results and post screenshots along the way on the main blog page. I’ll also post the selections on the blog each day although if this turns out to be successful and I find that a lot of people are doing them, I may change my mind - as too many people doing the same thing can affect the market. It’s actually not as hard as you might think to move a market and in some of the very lightly traded events, a few hundred can shuffle things up.


I’m going to use my in-running trading strategy to try make the money. I’ve no real timeframe on this but it would be nice to have it done in a year. On average, the inplay trades strategy has increased my bank by around 50% per month although it must be said that it hasn’t been running all that long. 50% per month would be amazing but I doubt it is sustainable so I’ll aim for roughly 20% per month. Again, when compared to trading financials this sort of return is, as the Americans might say, awesome. Perhaps its over-ambitious but sure what the heck, it’s all for a bit of craic.
While it’s never, ever, this smooth, here’s what an increase of 20% of the bank per month would look like:

May-12 €500.00
Jun-12 €600.00
Jul-12 €720.00
Aug-12 €864.00
Sep-12 €1,036.80
Oct-12 €1,244.16
Nov-12 €1,492.99
Dec-12 €1,791.59
Jan-13 €2,149.91
Feb-13 €2,579.89
Mar-13 €3,095.87
Apr-13 €3,715.04
May-13 €4,458.05
Jun-13 €5,349.66

So as you can see, it would take about a year – but I’m around the block long enough to realise that things are never so simple.

The horses I’ll be trading are part of my ‘inplay trades’ strategy that I've been posting on here the past few weeks.

 I've been recording this to just a €10 stake but it's going well. After 309 bets, I'm up to just under €300 profit:

Basically, I try to find horses than generally tend to run very well mid race (thus dropping in price) but find little when asked in the business end of the race. I back them at Betfair SP and then lay them at half that price in-running (with double the back stake). To find my selections, I basically watch a load of races and also study the formbook to try find a horses running style.
For example, let’s say a selection is backed with €10 at a Betfair SP of 11.0, I would then put in an order to lay the horse at 6.0 in-running which is half the price.

(Don’t forget that Betfair is in decimal prices so you simply don’t divide eleven by two. Rather, you convert to fractions. So half of 10/1 is 5/1, which in turn converts back to 6.0).

So if I back a selection at 11.0 with €10 and then put in a lay order at 6.0 for €20, there are three possible outcomes:

1.) The horse never trades as low as 6.0 in-running and loses the race. In this case, I lose €10.

2.) The horses price drops to 6.0 in-running but then goes on to lose the race. In this case, I lose the €10 back stake, but win €20 for the lay. This is the desired outcome as I gain €10 overall (excluding commission).

3.) The horse actually wins the race. In this case, I don’t win or lose money as I earn €100 for the back bet but lose as much on the lay bet. I like to call these ‘level’ trades.

Obviously, option one is the worst case scenario. Option two is what I want to happen, and option three doesn’t cost me anything.
I may tweak this over time but I’ll be sure to post any changes here. For example, so far higher priced horses have proved more successful and if this continues to be the case, I may focus on outsiders only. I’ll see how it goes.

Staking is based on the KELLY CRITERION. For more information on this and a Kelly calculator, see THIS PAGE.
Kelly Criterion has got a little bit of stick lately on some forums etc but it’s mainly from people who use it on losing systems and don’t understand the maths behind it. It's not perfect, but it can maximise returns during a good run and keep you relatively protected during the bad times. I guess it's a more complicated way of using a percentage of the bank. While I accept that Kelly has a lot of flaws, I need some sort of aggressive, compounded staking plan if I'm to turn a monkey into five large.
I’ll be adjusting my data daily to come up with the stakes. The Kelly formula needs to know your:

Bankroll – this will be the starting €500 and it will be updated each day.

Odds offered – a winning trade earns me 1pt and a losing trade costs me 1pt therefore the odds offered are even money. However, to account for commission, I’m going to use slightly shorter odds in the calculation of 19/20 (or 1.95).

Estimated probability of winning: Rather than estimating, I’m simply going to use my past results and adjust the figure as we go along. If we exclude the level bets, I’m currently hitting around 58% wins and 42% losers so I’ll start off with 58% as the estimated probability of winning. As I say, this figure will be adjusted as the data builds.

Finally, the stake recommended by the Kelly Criterion WILL BE HALVED. This will allow for some flexibility and to weather some of the inevitable storms. 
Questions, comments and indeed criticism is welcome so feel free to post a comment.

I’ll be updating this most days on the main blog page

The challenge starts on Thursday, 3rd May 2012.

This time next year Rodney…..

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