Tuesday, 8 February 2011

What does having an edge mean (and why is it so important)

If you've been involved in the markets for any length of time you will almost certainly have heard that to be successful you need to have an "EDGE". 

Today I thought I would give my understanding of what all the talk about having an edge is all about.

First let’s look at a few definitions of the word 'edge' 
 Google definitions
 a slight competitive advantage; "he had an edge on the competition"
 a quality or factor which gives superiority over close rivals
 an improved position; advantage
As we can see from the examples above an edge is a advantage over rivals, so basically it means the difference between success or failure in our betting activities If you have a positive edge in the markets you will have a competitive advantage over your rivals who in the case of sports betting will be the bookmakers or fellow betting exchange users, this will result in you winning over time. Conversely if you have a negative edge, your rivals will have a competitive advantage and this will result in you losing overtime. 
Bookmakers try to build a mathematical edge (over round) into every sporting event that they take bets on, so no matter who wins the event the bookmaker will make a profit. However even with their built in mathematical edge the bookmakers will not win on every sporting event, the bookmakers accept this because they know that overtime they will end up in profit against the general betting public due to their edge which ranges from 6% to as much as 40% depending on the event. 
It has been proved that the odds available on the betting exchanges will very accurately represent the true chance of a result happening, so if the odds on offer for the favourite in a horse race to win are 2:00 (i.e. 50/50) and the very same race could be ran one hundred times, the horse would be expected to win half of the races.
On the face of it then the betting exchanges offer markets without any edge either positive or negative. Unfortunately this is not the case the betting exchange user betting randomly on events would have a negative edge equal to approximately the commission rate that he or she pays to the exchange for the use of their service. The commission rate will usually range from as high as 5% to as low as 2%.
From the above we can see that although the exchanges usually offer a better betting proposition than the bookmakers, the indiscriminate gambler will still face a negative edge and, over time, the corresponding losses.

So the million dollar question is:

How do we gain and maintain a positive edge in the markets.
Well my answer to the above question is to implement the following strategies:

Mathematics:  Finding and exploiting mathematical edges

Psychology:  creating the correct mindset to deal with all of the pressures associated with speculation, also studying crowd psychology to find value bets/trades.

Systems: Systematically placing bets/trades that have been proved to have an historical edge.

Money management: The correct allocation of funds so that we will maximise the profits and limit any losses.

Diversification:  Using a diverse portfolio of methods so as to minimise the risk to our betting banks.

Specialisation:  Concentrating on areas where our strengths lie.

Record keeping: Using betting records to analyse results and find any positive or negative bets/trades that we place.

Tools:  Developing and using tools that will assist in maximising edges that we uncover.

Some readers may be wondering how big an edge is needed? Well the answer to that is smaller than most people realise, indeed a very small edge (1% or less) compounded over and over again can produce enormous profits.

 Further reading on the topic of gaining a betting edge:
The Wizard of Odds - compounding an edge   page down to the section ‘Don't waste your money

I hope you have enjoyed this post, 

Stay Patient

No comments:

Post a comment

Note: only a member of this blog may post a comment.