Confidence Based Betting

OrderFlowDashPro

Member
76 9
When I looked at the differences in trading compared to gambling, I found something striking. The biggest difference that differentaties trading from gambling is the ability to bet more in trading when the odds are in your favor. All the gambling games have betting limits, negative expectancy, or very powerful adverse selection (i.e when a player goes all in in No-Limit hold'em the other players will either fold or tend to call with an equal or better hand).

I feel that the novice trader probably doesn't understand just how powerful an edge the ability to vary the bet size is. First, you need to be able to have a feeling for when you've got a great trade or a trade that is not so good. While we often read about traders who can't tell the difference, a skilled trader's confidence should approximate the quality of the trade he or she has. I find reading the tape helps me with this aspect. Once you know you've a great trade, you can add size on your best trades or take size off on your weaker ideas. Variation within limits is the key as confidence is not assurance.

While confidence betting is important for any trader, one style of trading it works well with is what I call "point to point" trading which means I'll trade from any point to any other point. No waiting on setups- just get a quick idea and excute. The goal with point-2-point trading is to capture even average opportunity. The idea with point-2-point trading is to get into the market with small size and then by virtue of being in the game, you have the ability to add size when the good opportunity arises.

As you might realize, it is not possible to point-2-point trade futures with a small account. Though one might approximate this style by having two accounts open, a simulated account and a real account and taking the best opportunities in the real-account while staying in the game in simulated account--just need a solid system for keeping the accounts separate. At any rate, this style works best when one can get in with minimal leverage and ramp the leverage up by adding contracts at opportune times. I plan to try it in Forex soon and see if it works as well for me -- as the scaling opportunities are really much better there.

Now you might ask, why would you want to take average opportunities? Because the net profit, risk per trade, and profit factor form a type of relationship. A trader who only takes the best opportunities will only have a relatively few opportunities to profit from and thus must bet big to capitalize on those rare opportunities. While the trader may be aligned with the odds, the big trades will result in big wins or losses. As the trader shifts toward taking trades with less edge, he can reduce his risk and increase his net profit -- up until the point where the transaction costs negate the gains. So, it is possible to reduce risk by taking more medicore trades.
 
Last edited:

meanreversion

Senior member
3,398 537
Your analogy with poker is fatally flawed. If you have four aces, you know that the chances of winning the hand are very high. On the other hand, you might THINK a certain trade set-up has a high probability of success, but that's only in your head and cannot be mathematically proved.
 

OrderFlowDashPro

Member
76 9
Absolutely, I agree that poker has fixed/known mathematical odds whereas market has no known odds. But, I'm referring to the behavior of the other players. If you play against equal or better players, they will only call your best bets when they are likely to have an equal or better hand. The good players will fold and keep you from making any money.

What I suggest is that the market is different in that you can bet more on your best trades without such a reaction --provided your not a big trader or trading illiquid assets.

All the other casino/gambling games have either negative expectancy, betting limits, adverse reaction/selection, or reportedly they will kick you out. The one exception might be sports or events based betting which I don't know anything about.
 

Trader333

Moderator
8,655 981
The one exception might be sports or events based betting which I don't know anything about.

With betting exchanges this is not an issue as you are effectively betting against other punters and not against a betting company.
 

tomorton

Legendary member
8,420 1,343
I have observed that maths is more useful in real-life than I thought while I was in school...

One thing that has puzzled me for so long is why Americans do not seem to widely understand percentages. I know nothing of the American educational system but its a mystery why this is so.
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock