The Maths of betting

[Pat494]

I am aware that doubling up type of betting is a no-no BUT
mathmatically it would surely depend on one's win to loss ratio ?????????

At a certain point say for instance a 65% w/l ratio should deliver profits, maybe 90% of the time on doubling up or will it ??????

One could use a fibonaci ratio betting system i.e. 1,2,3,5 etc and at what w/l ratio would that have a 90% certain system ????

Perhaps someone here could run a test and let us know ???????

Perhaps 500,000 iterations ??

Thx if you could

 

[Splitlink]

I am aware that doubling up type of betting is a no-no BUT
mathmatically it would surely depend on one's win to loss ratio ?????????

At a certain point say for instance a 65% w/l ratio should deliver profits, maybe 90% of the time on doubling up or will it ??????

One could use a fibonaci ratio betting system i.e. 1,2,3,5 etc and at what w/l ratio would that have a 90% certain system ????

Perhaps someone here could run a test and let us know ???????

Perhaps 500,000 iterations ??

Thx if you could

I've met your type before.

You are the guy who asks the questions.

 

[nine]

It doesn't work.

The best way to test it is to use a monte carlo sim of your win/loss series. In the end the fixed % of equity at risk gives the highest return for a given risk of ruin. I did it once in the days I cared about rors and such.

 

[Pat494]

I've met your type before.

You are the guy who asks the questions.

:innocent:
1.I wouldn't need to ask if I could do it myself
2.Others may learn something useful from the answers TOO (if any)
3.If you don't ask you won't usually get told

 

[FXSCALPER2]

I am aware that doubling up type of betting is a no-no BUT
mathmatically it would surely depend on one's win to loss ratio ?????????

At a certain point say for instance a 65% w/l ratio should deliver profits, maybe 90% of the time on doubling up or will it ??????

One could use a fibonaci ratio betting system i.e. 1,2,3,5 etc and at what w/l ratio would that have a 90% certain system ????

Perhaps someone here could run a test and let us know ???????

Perhaps 500,000 iterations ??

Thx if you could

Doubling up when you lose you mean? you bet 1 and lose, then you bet 2, then 4, etc?

 

[gooseman]

Doubling up when you lose you mean? you bet 1 and lose, then you bet 2, then 4, etc?

I believe a company called Long Term Capital Management once employed a variation of this technique

 

[black bear]

Red & Black

If you are real interested in it Pat, and you would not have asked the Q if you are not would you

Trading is the only game I can think of where you could make an argument that each trade is in fact a straight 50/50 choice, its pretty dam close a lot of the time when price is range bound

You can become the casino

you need a provider who will allow you to play for absolute minimum stakes you are actually playing to lose the very very very vast majority of the time

You double up when a good run starts your just playing a time game while lady luck holds above 50/50

roulette system that did work when the minimum stake on red and black was something like an old sixpence

1234........ traditional system keeps adding numbers to determine next stake and obviously its the most ruinous system ever invented

You can reverse it, and X the numbers of when you lose instead and make the casino play against itself

on a win run

you get to add your stake on the end, the outside two numbers are your next stake

so

1234 1234 1234 = all losers = 5 each bet times 6 = 30 times your stake

You will find that you will often get little runs going and they are usually wiped out but you only lose your original line value which is 2 times 5 = 10

Some lines grow by

1,2,3,4,5 2,3,4 2,3,4 6 3,4 3,4,7 3 4,7,10 4,7 4,7,10 4,7.10,14 7,10 then..................ahhhhhhhhhhhhhh gone again

sure you get the idea, most runs will be wiped out so your loss on every run is 10 no matter how long the line runs for, you have to make the bet and you will find it gets pretty hard to do that when your down to two very large numbers compared to your original stake

Sort of like run your profits feeling

Do not no if its true but some guy in the 1950"s or 60 "s broke the wheel in the regent club I think in london then monti carlo using the system, he took a team of 13 people to trade the wheel around the clock with the owner of the casinos knowledge. The 1st wheel took 2 days to break, they headed of to the principality and did the same a number of times there and were escorted out and sent packing. I was told the wheel in those days had 5K and they ended up with a house each out the venture

Like I say don"t no if its a true story, one of my mates loved roulette and relayed it to me ages ago. He told me that is the reason why the minimum stake on Red and Black / Odd and Even is so high at the casino.



We tried it in the snooker club on a mini wheel for ages, We did get one run of numbers that were all 4 figs long, it came down to one Spin and .........

:clap::clap::clap: the club went totally wild................ happy days

drinks all round, never touched the F..ckin wheel again we all had blisters

 

[FXSCALPER2]

I believe a company called Long Term Capital Management once employed a variation of this technique

I doubt that very much. They wouldn't do something so obviously stupid. They leveraged to the hilt on outcomes that were so rare that they could be almost ignored. The stuff happened and they got hammered.

 

[fifty2aces]

Like this: Martingale (betting system) - Wikipedia, the free encyclopedia ?

Doesn't work - varying bet size can't make a -EV game +EV, it only modifies risk of ruin and variance.

 

[gooseman]

I doubt that very much. They wouldn't do something so obviously stupid. They leveraged to the hilt on outcomes that were so rare that they could be almost ignored. The stuff happened and they got hammered.

when the markets moved against them they were so confident in their models (and historicals) that they just kept on placing the same trade with the reasoning that it was just better and better value. That's how Merriwether made his name at Salomons taking the trade off Bears (I think it was Bears anyway).

Not exactly the same system but not dissimilar.

 

[MrGecko]

Pat,

learn about something called the Kelly Criterion.

 

[MrGecko]

google it; here is a link to the original paper

http://www.racing.saratoga.ny.us/kelly.pdf

 

[TheBramble]

learn about something called the Kelly Criterion.

Kelly isn’t particularly useful. Better than no risk calculation, but like most things pressed into service for trading purposes from external disciplines, it takes a significance way beyond its actual usefulness.

Can’t remember where I culled the following from (it was a long time ago), but happy to acknowledge any source that cares to claim it.

In answer to Pat’s originating question – there is absolutely nothing to stop you doubling or even Fibonacci-ing up on your trades, as long as you do so in equal proportion on both losing and winning trades and you have a positive expectancy for your system and your doubling/Fibonacci-ing doesn’t take you out of the game on drawdown. Kelly was/is a little optimistic suggesting you risk no more than 25% of your capital providing you have a max drawdown profile of 25%. Very optimistic actually.

The exact amount to risk on a trade is the big question in all money management systems. Risk too little will have your money won’t grow. Risk too much and the drawdown will put you out of business. In between too little and too much risk is an area where capital growth will grow to its maximum potential.

The original Kelly Formula was developed back in 1956 to solve a problem involving random interference on telephone lines. What Kelly discovered was a method of increasing data flow while reducing random information loss.

Before calculating the optimum percent to risk, you need your winning percentage (W%), the average size of your winning trades(W) and the average size of your losing trades(L).

The basic Kelly formula can be calculated as:

Optimum Risk Percent = W% – [(1-W%)/(W/L)]

Let’s have an example. Suppose you have a system that has a winning percentage of 0.6. Your system also has average winning trade of 8 and your average loss is 4. Thus, W% = 0.6 and W = 8 and L = 4.

Using these numbers results in the following:

Optimum Risk Percent = 0.6 – [(1 – 0.6)/(8/4]
= 0.6 – [0.4/2]
=0.6 – 0.2
0.4

Thus, the percentage of equity that would provide a maximum rate of return is 40%.

The major problem with the Kelly formula is drawdown. If you have a system that is right 60% of the time, you could still be wrong 10 or even 15 times in a row sometime during your lifetime of trading. Risking too high a percentage would be disastrous. The Kelly formula implies (sorry, you have to read the original report) that unless your drawdown is less than 25%, never risk more than 25% of you equity.

The Kelly Formula is critical for traders wanting optimal rates of return. For practical application of the Kelly Formula, use 80% of the Kelly %. In the above example – we derived an optimum risk size of 40% of capital. This is too high for practical use. Instead, we would use 80% of 25% which is equal to 20%. Determine how many trades you are likely to have on at one time and then divide your 80%-Kelly value by that number of trades. For example, if you are likely to have as many as 8 trades at one time, then your optimal trading size, using the above example, would be [20%/8] or about 2.5% of your trading equity.

 

[breadman]

I only increase my bet size at the start of each year and stay at the same size all year.Looking at my results over the last few years I have found it's better to increase my bet size after a losing run.This is probably the hardest time to do it mentally, but if I had of done it my results would have been better.When I have good runs I always fear I am going to give it back, so I would not want to increase my bet size then.

 

[temptrader]

I'll say this, and I'll keep on saying it: playing probabilistically will always get you F*CKED in the long run. This is not to say it can't be done, but if you rely PURELY on probability, you will get f*cked eventually. That's why all systems fail over the long run. That's why betting and laying horses is the hardest game of all (because the horse is the probabilistic factor that you cannot take out, regardless of your time in studying form).

I have a theory about gamblers and it goes like this:

Everyone one of us knows someone who gambles on the horses, and they always lose. Not a lot, but consistently lose in the end. They always come back for more, as if they were glutton for punishment. And every time they do it again they always tell themselves this time they will make it. And the cycle goes on and on and on, and we haven't even talked about the tipsters and systems that they sometimes play with.

I seriously think that the major psychological factor is their ego. They ALWAYS think that they could do it, they will argue till they are blue in the face that they could do it. And every time, eventually, they lose everything and the process starts again when they try to accumulate another bank to give it another go.

The point I'm trying to make, and I hope it doesn't sound as if it's been done to death, is that anyone trying to make it in a game like that (horse racing) has a next to zero chance of ever succeeding. Only a handful of seriously successful people come to mind since the game is that hard, and yet, everyone who enters somehow think they got what it takes. It's as if the entire population is willingly poisoning themselves with these notions of being able to make it.

 

[black bear]

Good Post and very true regards gamblers

Choose a small well run stable, get to no it inside out, SR of his or her horses and where the trainer achieves the SR, where the trainer fails

where he takes his horses, why etc etc etc

Just one stable

Never read the tipsters or look at the odds, only check your horses form and history, forget the rest thats the trainers job

You will no which ones to back I promise, they will stand out like a sore thumb when you have been watching for a season or 5

You will not make a living out of it unless you don"t really need to in the 1st place but you will have a hell of a lot of FUN and you will be well ahead of most who back horses and you should get an holiday out of it once in a while, the rest of the time you will just churn your account.


You will have heard this advice before to, most have but like trading most do not follow the rules

The Horse does not choose where to run the Trainer for the most part does and then only after hours of checking the fixture lists

When he wants to really go for a win he does it where he holds advantage....always, his or her money is down with yours or the connections are on at the very least.

Do not be frightened regards the offered odds, in Horse racing you must be greedy when its on offer, thats your margin to cover the lose runs

Have Fun and do not expect to make anything, wait for your chances some of them will blow you away, you will not believe what your looking at.

If you do the above you are not a gambler, a gambler backs this and that in a none profesional manner, very often he is very well informed and a very good judge..............

He just as no plan so he is F..cked !!

 

[fifty2aces]

I'll say this, and I'll keep on saying it: playing probabilistically will always get you F*CKED in the long run. This is not to say it can't be done, but if you rely PURELY on probability, you will get f*cked eventually. That's why all systems fail over the long run. That's why betting and laying horses is the hardest game of all (because the horse is the probabilistic factor that you cannot take out, regardless of your time in studying form).

I have a theory about gamblers and it goes like this:

Everyone one of us knows someone who gambles on the horses, and they always lose. Not a lot, but consistently lose in the end. They always come back for more, as if they were glutton for punishment. And every time they do it again they always tell themselves this time they will make it. And the cycle goes on and on and on, and we haven't even talked about the tipsters and systems that they sometimes play with.

I seriously think that the major psychological factor is their ego. They ALWAYS think that they could do it, they will argue till they are blue in the face that they could do it. And every time, eventually, they lose everything and the process starts again when they try to accumulate another bank to give it another go.

The point I'm trying to make, and I hope it doesn't sound as if it's been done to death, is that anyone trying to make it in a game like that (horse racing) has a next to zero chance of ever succeeding. Only a handful of seriously successful people come to mind since the game is that hard, and yet, everyone who enters somehow think they got what it takes. It's as if the entire population is willingly poisoning themselves with these notions of being able to make it.

You could replace every mention of the phrase "horse racing" with "trading", and that post would make just as much sense. Ultimately, each individual trade is an event with a random outcome - a good trader will only make the trades with a high probability of profit, and limit his risk such that a string of losers won't wipe him out.

A bad trader will either trade without an edge (like a lot of people betting against the bookies on horses) and slowly lose money, or trade with an edge, but think he is above randomness, and can "predict" market moves with enough accuracy to eliminate the need for risk management.

It is perfectly possible for some people to make money on horses, you just need to be better at judging the expected value of a bet than the bookies are, which is obviously easier said than done.

 

[black bear]

ran out of reppy"s Fifty

Great post

 

[temptrader]

You could replace every mention of the phrase "horse racing" with "trading", and that post would make just as much sense. Ultimately, each individual trade is an event with a random outcome - a good trader will only make the trades with a high probability of profit, and limit his risk such that a string of losers won't wipe him out.

A bad trader will either trade without an edge (like a lot of people betting against the bookies on horses) and slowly lose money, or trade with an edge, but think he is above randomness, and can "predict" market moves with enough accuracy to eliminate the need for risk management.

It is perfectly possible for some people to make money on horses, you just need to be better at judging the expected value of a bet than the bookies are, which is obviously easier said than done.

Not quite correct. And for this reason I state, over and over, that horse racing is the hardest game of all. Trading is not as hard as horse racing, it's still hard mind.

It is perfectly possible for some people to make money on horses

no it is not, and I've not really heard of any that have made the really, really big time (apart from 2 of course). It is perfectly possible for a very, very, very small minority people to make money on horses. The rest lose, and it's an extremely bitter pill to swallow. The horse being the probabilistic factor f*cks you up.

In trading there is the possibility to move away from the losing runs, eventually having NO losing runs so to speak of. There is a possibility of almost taking the probabilistic factor out completely. It is for the latter reason why those that make it as traders can take a lot. Those that make it as winning punters at horse racing face the possibility of having a fair portion of their accounts wiped out due to the losing runs that always happens, and that's an incredibly nasty thing to have to live with.

 

[Mathemagician]

Not quite correct. And for this reason I state, over and over, that horse racing is the hardest game of all. Trading is not as hard as horse racing, it's still hard mind.



no it is not, and I've not really heard of any that have made the really, really big time (apart from 2 of course). It is perfectly possible for a very, very, very small minority people to make money on horses. The rest lose, and it's an extremely bitter pill to swallow. The horse being the probabilistic factor f*cks you up.

In trading there is the possibility to move away from the losing runs, eventually having NO losing runs so to speak of. There is a possibility of almost taking the probabilistic factor out completely. It is for the latter reason why those that make it as traders can take a lot. Those that make it as winning punters at horse racing face the possibility of having a fair portion of their accounts wiped out due to the losing runs that always happens, and that's an incredibly nasty thing to have to live with.

There is actually a way to arb horse racing (or any pari mutuel betting situation). It's just difficult to execute in real time.

jj