Tuesday, 13 October 2015

Trading lessons in the pub!

Back to writing with a new trading post on why you should pay a visit to the pub, drink a pint and observe the locals while they watch football. Let’s see if this makes sense…

If trading is a war you better read some Sun Tzu quotes!

There is controversy around it but it’s generally accepted that Sun Tzu, a Chinese military general and strategist, wrote “The art of war” somewhere in the BC era. This war strategy manual was translated to English in 1910, being nowadays overly cited in virtually any field involving some type of competition.

Sports trading and competition goes hand in hand as one of trading components is precisely a sort of battle between people with different skillsets. In “Game of trades – the fight for the green throne!”, I described the armies involved, today I’ll look at it from another angle: how can you apply some of Sun Tzu or Sun Pin (who knows?) reasoning and become or at least understand your enemy? 

Took a trading course in the pub drinking cheap lager before knowing about Betfair and craft beer!

Before the explosion of internet streaming, there was only one way to have access to all football, a paid TV channel which was out of my financial reach. Since I’m a football fanatic way before I started trading, I’d often find myself in the Portuguese equivalent to an English pub.

So, before I even knew what a ladder or a lay were, I had already spent almost 10 years watching football in public places, really close to some of my future trading enemies! Today with Twitter, you can have a pre-game feel on the public perception but understanding how a group of people think during a football match is invaluable, if like mine, your trading portfolio includes trading volatility and especially if you do it in short time frames.

10 years in the pub don’t come handy so I present you John, the regular!

To cut it short, John likes action. It can be a shot from downtown (he doesn’t rate xG or “money ball(s)”!), a cross from far away or virtually any set-piece, but the ball should come close to the opposition area, fast and often. Otherwise, he’ll start to get a sense of disbelief on his team chances and criticize every single backwards or sideways pass, saying stuff like “Backwards pisses the donkey!”. Defenders are rated by the outcome of individual duels, while strikers are defined by goals. Talking about goals, they are always a surprise when they come from the underdog with the match tied (Peter Webb wrote about this perception problem with statistic detail here). Midfielders like Busquets will pass anonymous if the team wins but will be in the first line of criticism otherwise. On the other hand, managers are judged by results and referees can dictate the season classification. 

Don’t get me wrong, everyone has a bit of John when watching their own football club. Moreover, when I started trading football I was John. Later and still nowadays, I have a mental exercise when a major event happens (goal, key injury, red card, etc), which consists on asking: what would John do if he was trading this match? There are trading lessons to be taken from the general crowd opinion during a live match and I’m pretty sure this also applies to other sports like tennis. For instance, understanding how people react to a possible but not certain injury, can't hurt.

Is John a good representation of the enemy?

It depends on what you are doing in the market and your trading time frames. This could be material for another post but the shorter your time frame and the more reactive rather than predictive you are, the more you should care about John. Of course, I’m aware that even if the sum of Johns represent the collective majority, they probably don’t represent the money majority. Nonetheless, more than advocating that understanding John is the key to success, I'm telling: you should never forget you are trading against people. Bots and mathematical models are involved too but they are also created by people. Bottom-line being, depending on your trading style, identify your enemy and for every kind, put yourself in their own skin. As an example, what you would do if you were using a bot? In what situations are they in advantage or disadvantage?

Friday, 18 September 2015

It’s time for a follow-up on my Premier League preview! (Part 2 of 2)

The second part of the follow-up on my Premier League preview comes with a delay, but as someone said: “better late than never”.

Arsenal – Getting closer, but is it enough? I don’t think so!

The title is a reference to my preview, where I stated they lack individual quality to win the English Premier League. Based on this, I was expecting the arrival of at least a top player. No one arrived, so Mr. Wenger has to stick with Walcott/Giroud upfront, Coquelin as defensive midfielder and Gibbs/Monreal at the left-back position. They are not bad players but saying Arsenal could only improve these positions with top players, like Mr. Wenger stated, is a fallacy. Of course, it would be the ideal situation, but there are a lot of players who could improve them, at least from a depth perspective. This depth problem was exposed against Liverpool and a bit against Dinamo Zagreb, especially at the center-back position, where the inclusion of Gabriel and/or Chambers represent a major decrease in quality.

To add to that, I honestly think Walcott doesn’t fit as a striker in Arsenal's possession game. He is mainly dangerous in one match moment, the defensive-offensive transition, if given space to explore his pace; ironically enough, Arsenal plays in the opposition half most of the time, with limited space for Walcott to be effective. Apart from all the negative points stated, I still think they are the most pleasant side to watch in the Premier League with a very fluid attacking system. 

The markets consider them to be second favorites to win the EPL with an odd of 5.8 but I really can’t see that happening. In fact, I think they'll receive a reality check from Chelsea on Saturday. Like always, when it comes to football predictions, I may well be the idiot when Chelsea vs Arsenal finishes!

Man United – Divide and conquer 2.0 by Louis Van Gaal

Like I said before, I don’t fully understand Louis Van Gaal, both tactically and from a man management perspective. I get puzzled over and over again by his options: there’s the De Gea/Valdes/Romero riddle, shipping Javier Hernandez to Leverkusen while playing Fellaini as a striker, preferring Young over Nani, going for a tremendous overpriced deal for Martial at the deadline and the list could go on. 

When it comes to Man United, Alex Ferguson will always be the benchmark and one of his secrets was always being able to provide the ideal conditions for second-line players to excel. Everyone will remember the top class players he managed, but for every Ronaldo, Giggs or Vidic there was Evans, Fletcher or the aforementioned Chicharito who were vital as the seasons went on.

Van Gaal seems to prefer a ruthless approach, which leaves him with a short number of valid options as the individual player quality is above the system. In this sense, I think Shaw's injury will be very detrimental to their defense, especially if Blind is deployed at left-back and Rojo enters the team.

That said, their midfield pressing is a bright spot this season, which makes them a lot more dangerous without the ball. When they have to dominate possession, problems arise as their build-up issues from last season are still there and pretty evident. Finally, the markets priced them above Chelsea to win the EPL, at 12.5, which is hard for me to understand even with a 6 point difference between them.

Honorable mention – Tottenham

Although they lack the top 4 individual quality, Tottenham is a very well managed team, which will receive a massive boost from Heung-Ming Son arrival. Pochettino’s approach is based on possession-style football, with two of the best central backs, in the EPL, offensive-wise and two top players in Kane and especially Eriksen. At the moment, they would be my pick for the 5th place.

Thursday, 3 September 2015

It’s time for a follow-up on my Premier League preview! (Part 1 of 2)

Like promised and as the transfer market is now closed, I’ll take a look on the effect of late signings and the first four Premier League weeks on title contenders’ chances. So, let’s begin with the champions with limp wings…

Chelsea – Offensive limp wings become permeable defensively…

In my Premier League preview, I talked about the limp wings issue which consists in the lack of offensive threat offered by Chelsea’s full backs. The first four fixtures confirmed this idea but a new and more serious problem arose: defensive stability, which was one of the keys to 14/15 title, is gone. Ivanovic, who has always been reliable defensively, is being constantly exposed by the opposition and John Terry seems past his prime. Although there is individual fault involved, I think Chelsea’s defensive problem is more systemic, as it’s also not usual for them, to have Ivanovic exposed to 1v1 situations, so frequently. 

Hazard’s Schrödinger cat issue is also evident this season as he can’t be in the first line of creation and be expected to finish at the same time. Probably, Pedro arrival will ease his burden and also help Ivanovic defensively on the right. This was quite a capture for Chelsea, which had a good transfer window. In Baba Rahman they have an offensive-minded left back, which might shift Azpilicueta to right back, and represent the key to solve the limp wings issue. Of course, everybody’s writing them off already, as they are 8 points off Manchester City, but don’t forget there are 34 fixtures to play and with a weaker squad on paper, they did 87 points last season.

Man City – Defensively permeable in 14/15 to Defensive fortress in 15/16

I told you they were the most dominant side in the Premier League in my preview and the first Premier League weeks confirmed that idea. Furthermore, the inclusion of Sterling is being a success as their possession-style football benefits from the width he and Navas offer. This is the reason why I’m a bit skeptic about the inclusion of Kevin De Bruyne in the starting eleven as some positional redundancy will be introduced.

Don’t get me wrong, he is a great player but there's more to football than picking eleven players and sending them to the pitch. In this particular case, I think he tends to occupy Silva’s territory and you know my opinion: there’s only one David Silva! Pellegrini must have a plan for the Belgian, and I’m looking forward to see how it will play out. Defensively-wise, I have to say: I’m amazed with their evolution. Mangala is playing very well, but especially the defensive midfield work has been stellar with Fernandinho exceling. Furthermore, they signed Otamendi who I rate as one of the best central backs in the game. 

They look very strong on paper and on the pitch, and it will be very interesting to see their Champions League campaign. Truth must be said though, they are getting some bad karma out of their spending ways, as their draws are always nasty.

I still think they'll be defensively exposed against Euopean top teams, but they are certainly stronger this year. They surpassed Chelsea as favorites, for the Premier League title, and rightly so, but I don’t think the title race is over, as the season is long and full of terrors!

Thursday, 27 August 2015

Is there a blind obsession with statistics in the betting world?

Third trading post and this one is a direct consequence of my incursion in the mighty world of Twitter. I already knew about betting advice based on statistical data, what I wasn’t expecting was the magnitude and the reach of it. Bear in mind I’m probably biased when it comes to this issue due to my research background, which involved statistics, data and computational modeling. So, let’s begin…

Would a person who never cooked be able to make a top dish, if given a large amount of ingredients, of variable quality, to choose from?

When it comes to cooking, there are at least two important parts of the equation: technique and ingredients quality. If you’re like me and don’t know a lot of cooking techniques, the only way you’ll succeed is by choosing good ingredients and somehow don’t spoil them in the process. So, what does this have to do with the use of statistics in the betting world? Probably there are better analogies, but my point is: we live in a world where the amount of data is huge and readily available for everyone. Adding to that, nowadays you don’t need to have a Math degree to somehow be able to extract some odds out of that data. That being said, I can assure you that if you don’t have an edge statistically-wise and you don’t know how to select quality data from the whole bunch, the odds you are cooking will suck!

Enough of cooking, let’s get down to business!

Fair enough, let’s start with the “problem” of the amount of data available. Manchester United are playing against Swansea on Sunday and with some tweaking here and there, you can select two sets of data: one that supports Swansea to win and other in favor of Man Utd. Furthermore, you can also find evidence supporting the over and the under for the same match. Politicians and economists with some agenda do this all the time, it’s all about cooking it the right way.

When it comes to the punting world, I understand the commercial side of it: you’re selling something and a bit of data can validate your tips. If you’re right, you’re the man, if you’re wrong blame the variance! 

This leads us to the other part of the problem, the selection of meaningful data. In science, if you want to obtain credible results, from an experience, the number of observations is an important issue. Furthermore, each observation must be obtained in the exact same circumstance as the others. So, transposing this to football databases, how can you reach any conclusion about Van Gaal’s Man Utd, based on historical data from Ferguson or Moyes tenures? Even the first Van Gaal matches are not meaningful in the present, as he experimented a lot in the beginning; ex: what does a 3-man defense with the likes of Tyler Blackett playing as to do with the current setup?

Football: the sport where results lie!

One of the reasons behind football popularity is the frequent unfair nature of the final result; in some sense, it’s a bit like trading sometimes: a team can take more EV+ decisions than the opponent and still lose or draw the match. Final results lie in football! 

As an example let’s take two 0-0 results from last week: Man Utd vs Newcastle and Arsenal vs Liverpool. In the future, these results will be used to support some Under bet or to model the odds of the Under/Over market. While in Man Utd game, the 0-0 can be considered a fairly true result, anyone who saw Arsenal vs Liverpool can’t possibly say that the 0-0 reflect what happened. Both GK had amazing performances, plus there was a goal unfairly ruled out for Arsenal and 3 shots off the woodwork. My point being: don’t follow or use stats blindly, they don’t tell the whole story!

Final remarks – Take advantage of stats and not the other way round!

As I stated in the introduction, my professional background probably introduces some bias in my views, as I know it’s relatively easy to drown in the sea of statistics available nowadays. 

Nonetheless, I’d like to state I truly believe it’s possible to take advantage of stats in order to score some profits out of the markets. What I don’t believe is that anybody can do it, just because they are available. As always, you have to have an edge: it can be your data selection, your statistical knowledge, your ability to construct customized data from the databases available or others I don’t even know about. 

As a final remark, you may ask me: “so, if you work with stats and data, why do you approach the markets with an intuitive-based approach?”. Fair question, but I guess I choose to follow the old proverb: “In the house of a blacksmith, the ornaments are made of wood”.

Wednesday, 19 August 2015

Game of trades – The fight for the green throne!

Second trading topic and, if you are a Game of Thrones fan like me, you probably caught the title reference. So, what does a fantasy TV show have in common with sports trading? First of all, I’m not particularly fond of the fantasy theme but Game of Thrones is a lot more than that. For me, it’s mostly about human nature in a competitive environment. Similarly, sports trading is a lot about human behavior: your own and the others’. A good understanding of people’s motivations and their behavior in daily life can only help you, when it comes to trading. The second common feature, and the one I’ll be exploring in this post, is the fight between - and inside - groups of people with different skillsets for the ultimate prize: the iron throne in the TV show, and the green one in trading!

Seeing trading as a big battlefield where each one brings their own custom-made weapons!

So ask yourself, which weapons do you rely on when the match starts and you're up against the others? Other question pops: who are the others? I’ll probably leave someone out, but as I see it, these are your main opponents: courtsiders, bots, traders spotting value with mathematical models, live punters and intuitive traders based on market and/or sports knowledge. 

Courtsiders always get a lot of stick on the internet as their approach is based on a technological advantage. Briefly, they base their positions on their ability to reach information first. Lots of people share the vision that they are ruining trading, and I can understand the point to some degree, but I wouldn’t worry about them. You have to acknowledge they exist, know what they are doing and get away from them as much as you can. Probably they are a bigger problem in tennis than in football, but all you have to do is find other ways to trade, without competing directly with them. Also, although they exist and can make a living out of it, I’m pretty sure there is a fierce competition among them and a lot more failed courtsiders than successful ones. If you do football pre-live trading, which I don’t, there is also an information competition for the starting line-ups, which could also be classified as some sort of courtsiding but is generally not spoken of.

On to the bots, which I love deeply when they screw up! These are software applications running automated trading positions based on some sort of algorithm developed by their creator. I might be speaking out of my depth here but I think they are generally developed around historical price data. Of course, they are not prepared for outliers! There are also people like Matthew from The Crazed Alchemist, who is very knowledgeable on the betting/trading world and bases his positions on an in-play mathematical model, which spots value on the markets. 

Finally, my own group: people who trade from home based on their market and/or sports knowledge. If you are in this group, you don’t have a technological or a mathematical advantage, so “what differentiates you from the others?” is the million-dollar question.

Differentiation – oh no, this is going to be hard work!

Yes, there are no free lunches in the trading world! Like I told you before, even the courtsiders have to differentiate themselves amongst their peers. In terms of football knowledge, this blog is intended to give you a glimpse on how to analyze a football match through the eyes of a trader. Between the lines, I already mentioned that knowing a team like Crystal Palace inside out is more valuable than knowing Real Madrid! Still, how can you differentiate yourself on market knowledge? In my first post I told you I would not dwell into my strategies, but I can tell you a little story about my path. So, my first profitable strategy was developed for the last 5 minutes of the match! To achieve it, during a year and a half I watched hundreds if not thousands of “5 minute matches”. I know it sounds ridiculous but during that period I doubt there was someone in the whole world who had a similar number of market observations for that specific match period. It was not glamorous at all, a bit like the Night's Watch!

Of course, later I expanded my knowledge to the whole match, which is a lot more interesting, I can tell you! That said, the bottom-line here is: differentiate yourself, it can be football or market-wise, maybe both, but you have to do it, in order to improve your success chances.

New twitter account

So, it will start very slowly as I’m new to it, but following some feedback I got, I’m introducing my new twitter account: https://twitter.com/MrUnknownTrader
The goal is to give you some fast updates and previews from the matches I watch, which will feature in the blog, in the usual match review format. Hope you enjoy it!

Sunday, 16 August 2015

Match Review: Manchester City - Chelsea

Back to match reviews, here's the first big game of the season! But, first of all I would like to thank for the feedback, on my last post. My focus will remain on football analysis but, from time to time, I’ll mix in some trading topics.

Pre-Game Questions 

No surprises in the starting lineups, but I was looking forward to see how Mangala would fare against a top side and whether he can be the answer for Man City’s defensive woes from last season. Furthermore, I was expecting Man City to dominate the possession game with Chelsea happy to sit deep soaking the pressure, like usually happens when Pellegrini and Mourinho sides meet. I looked at the markets before the match and I thought Man City at 2.00 was a bit on the low side. The match proved me wrong, not because of the final result, but by the way it was played. On to that…

First Half – Chelsea’s plan goes wrong but Begovic keeps them in the game! 

The match starts and, in a matter of seconds, Aguero is face to face with Begovic! The deadlock was not broken but it represents well Chelsea’s game plan failure. It’s usual for Chelsea to give the possession away in big matches and wait for the right moments to launch deadly fast transitions. What is not usual for them, and never happened last season, is the opposition being able to create five or six clear cut chances in 45 minutes. If you give Aguero five of these, you can consider yourself lucky if you only concede one goal, although truth be told: Begovic was amazing!

Back to the game, Manchester City was incredibly dominant in the first half, especially in the first 20 minutes, where they could’ve finished it. When Chelsea was improving a little bit, Aguero proved with an amazing goal why he's the best striker in the Premier League. Chelsea didn’t look good at all in this half and even their medical staff looked worse than usual!

Second Half – Two Belgians with a different fate: Hazard forgives while Kompany kills! 

Chelsea could only improve in the second half and indeed they did, controlling possession a bit more although City always looked the better team. Perhaps, the key moment was Hazard’s missed chance on minute 70 which, by the way, was their best moment in the whole match. When Mourinho decided to risk everything, Kompany sealed the game with another goal from a corner kick, beating Ivanovic in the air, who is also to blame for City’s third goal.

I wrote earlier about Chelsea and Man City in my PL review, and the beginning of the season is highlighting Chelsea’s fragilities and Man City’s qualities. For the lazy ones like me, I’ll repeat it briefly: Eden Hazard is receiving the ball too early in regions where he can’t be decisive while Azpilicueta and Ivanovic don’t pose an offensive threat, leaving Chelsea with limp wings. Furthermore, and this is a new problem, Ivanovic is being exposed defensively which was pretty rare last season and throughout his Chelsea career.

On the other hand, Man City is looking very good, with their possession game at its best and although it’s too early to have a final opinion, Mangala’s inclusion is helping City’s defensive problems. Today, he was really great, very composed and concentrated, and a monster in the air!

Trading: Pre-game analysis vs in-play analysis 

First of all, this topic deserves an entire post, but as a short preview let me tell you that although it is useful to anticipate scenarios before the game, you should not be a hostage of your pre-game opinions. Practical example: I thought 2.00 was a low price for Man City pre-game. The match showed I was wrong, so does it mean that I would lose money if I was trading? Not at all, I could win or lose irrespective of my pre-game opinion as in-play trading starts when the match starts. One of the most common trading mistakes is what I like to call “to fall in love with your opinion”, where one takes positions based on its pre-game opinion, ignoring what is happening on the pitch. Bottom-line being: you don’t have to guess the match outcome to be successful as a trader, it’s all about using the markets to make a profit. The need to be right is an ego issue which doesn’t help at all when it comes to trading.

Thursday, 13 August 2015

“Cut your profits short and let your losses run”

No, it's not a mistake! After some football posts I decided to try a trading one, where I’ll explain my views on why the most famous trading saying: “Cut your losses short and let your profits run”, doesn’t apply, at least totally, to in-play sports trading.

Cut your EV- decisions short and let your EV+ decisions run!

To the best of my knowledge, these words are attributed to David Ricardo and were written for the first time in 1838, on “The great metropolis” Vol. 2, by James Grant. Nowadays, if you are somewhat related to the world of stock exchange and/or forex/sports trading is virtually impossible not to have heard about this, it’s everywhere!

So my question is: how does an 1838 saying about the stock exchange, applies to sports trading? The short answer: like most economists’ theories, it only makes sense for controlled environments with low volatility and well-defined patterns. Do in-play sports markets present these features? No!
Perhaps more relevant to the question, you can have a profit from a EV- (negative expected value) decision and have a loss from a EV+ (positive expected value) one. Furthermore, imagine this scenario: you open a EV+ position, the market goes against you, and you close your position with a small loss out of respect for Mr. Ricardo; later (seconds sometimes), you see the market go in your favor, but you’re already out! To get things more complicated, now imagine this: you take an EV- position but the market somewhat favors you, you let the green run only to see it turn red. If you've traded long enough, I’m sure these scenarios ring a bell! 

Ironically, there are situations where you should cut your profits and others where you should let your losses run, a bit at least. My point being: you should cut your EV- decisions short and let your EV+ decisions run! Of course, I’m not saying Mr. Ricardo insight is wrong, far from it. Nonetheless, taking it too literally without thinking, may be detrimental to your in-play trading. I’m repeating “in-play” because pre-live trading is another world.

Million-dollar question: how do I know if my market entry has positive expected value?

The person who creates some sort of trading software which rings and says “Congratulations Mr. Unknown, you just took a EV+ decision!” will be very wealthy and admired by all traders! The fact is: between EV- and EV+ decisions there is a massive grey area. The ugly truth is the only way you can get close to an answer is by intuition based on trading experience. Of course, you can make some kind of calculation, but it would be a very complex process as the conditions change from match to match.

Personally, if you gave me my own set of traded positions after a match, I could tell you that the whole set is EV+, but if asked to classify every single position I would be in trouble.

Food for thought aplenty, but you’re giving me nothing to work with!

Keep in mind this EV issue and trade with purpose; if you’re trying new things every day and give up on a strategy each time you have a loss, you’ll never evolve. The markets are very cruel sometimes, but we only tend to remember the times we were unlucky, believe me, if you've traded long enough you also have had profits you didn’t deserve! Also, when you're on the ladders, it's easy to forget that when you take a position, there is someone on the other side taking the exact opposite one. What makes your decision better than his/hers? (Better stop, this could make another post!)

Blog balance and further directions!

After eight posts, I can tell you I’m enjoying blogging and it's helping me to stay involved. Nonetheless, posts like this one are a bit harder to write than the match reviews. So, it would be great if you could give me some feedback, for me to decide whether to stick to football or mix in some trading topics now and then. Also, discussions about the post are very welcome, as always!