How to define 'its working'

[Kai]

The question I am being asked is how do I know its working?

Well, there's only one way to keep score. You need results and paper trades aren't really results. People can easily lie to themselves and others but the numbers can't lie. Get the results behind you and you won't have to ask if it's working or not. It doesn't sound like you developed a strong edge to be honest, it's very difficult to find a strong one at first in general, but the problem you have with a minor edge is that you're constantly on thin ice and it can easily go wrong for whatever reason, so I'd say try and keep the pressure at a minimum and build on it until it gets stronger. Quitting your job at the first sign of success doesn't sound like a sensible idea, it sounds like you're adding a ton of unnecessary pressure on both yourself and your relationship with your wife.

Think there was a similar thread a few weeks ago (viewtopic.php?f=32&t=18491), there was a number of threads like this over the years so you can do a search as well.

[Xeres]

[/quote]
I'm rather puzzled that you made £18K in real money (you didn't say how long it took) but still don't know if it's working, and why you continue to predominately paper trade?

[/quote]

I started paper trading in Jan 2018 having back tested during in 2017, I paper traded for a few months to ensure the real results were consistent with back testing, They were slightly down which is what I expected but in line with overall expectations so the £18k is from a little over 1 year.

I had a really bad patch in July which had 23 losses in a row so I stopped for a while to recover some confidence. I was actually running 2 strategies so I paper traded one and then used the other. This went well until October when I suffered another bad period of 15 losses which I knew was statistically possible but hadn't happened in testing or simulations I had done - my bad for not doing enough testing!

I don't like the volatility of gambling, it probably is a winning strategy but I don't seem to have the stomach for it - hence my move to trading - rightly or wrongly I guess I will find out.

[Xeres]

[/quote]

Now I am even more confused, you have a profitable strategy although without knowing what you are doing its hard to tell as it sounds like you are just effectively laying high prices which long term doesn't work. Ignoring that you have something profitable but you plan on quitting your job to trade?

"but at least with a trade I have more control over what I lose"


[/quote]

The model I developed is for back bets only, I have never had the time to look into lay bets. I basically calculate a prediction for every single horse and then from there run another optimiser that slects a subset of them. There are plenty of academic papers on this subject (Noah Silverman being one) which is where I got the inspiration from.

Yes obviously I have more control with a trade than my current strategy in terms of losses, right now all bets are places at a fixed point in time so unless I pick the winner its a 100% loss. In the very limited time that I have traded so far I've been able to limit losing trades to a small fraction of what I was prepared to lose - that is the point right or am I missing something?

[LinusP]

I guess it depends when you are betting, the value is from your initial back bet so any closing trade will likely have a negative ev. If you are willing to pay that price for a better nights sleep then fair enough but you won’t make as nearly as much, if anything.

Have you looked into the place market? Lower odds so smaller pnl swings.

[Xeres]

I guess it depends when you are betting, the value is from your initial back bet so any closing trade will likely have a negative ev. If you are willing to pay that price for a better nights sleep then fair enough but you won’t make as nearly as much, if anything.

Have you looked into the place market? Lower odds so smaller pnl swings.

I've never looked at the place market to be honest, the limiting factor has always been time. One of the reasons I tried dutching was to reduce the swings and it does to an extent, the margins are just a lot smaller and requires a lot more outlay.

[ShaunWhite]

Your paper testing might not have a sufficient sample size if your strategy strays a significant distance from a 50/50 strike rate. With 50/50 a few 100 might give you a guide but one that is nearer 1/99 either way would need 1000s.

Have you tried this on several years of historical data? It's often the case that very high/low strike rate strategies can exhibit periodicity that spans years rather than months.

I think you said your strengths were programming and maths? Use that! It's a massive positive, and attack this with some hardcore analysis on a decent dataset. The free stuff is a start and goes back 10years but priority #1 and #2 for you is to start capturing data, ideally something fairly niche, and get 100 strategies tested in a few months not just 1 or 2.

[ShaunWhite]

.... and when you've proved something by backtesting, you'll find that going live with them is a whole other world of pain.

[kingsmark]

£18k profit demonstrates some identified value and success. However, 23 subsequent losses cannot really be attributed to statistical possibility. There is a problem with method, execution or data. July losses confirm this.

Unless you can fix the flaw(s) your model is unreliable. Trading is a different concept and using it to exit losing bets is not a viable solution. Any significant variance between paper trading and actual results inidcates a subconcious bias, probably aversion or reaction to losses.

You might find that extending your dutching selections in some markets, to return zero profit, would be a step in the right direction.

[Kai]

Didn't realize those were betting results, you would probably need to start from scratch when learning to trade, it's a whole different game. Nobody sane would tell you to quit your job for a betting strategy. You can always revisit your betting strategy at a later time, if it doesn't become obsolete by then, you could potentially automate it with Bet Angel or at least use it to churn more commission to mitigate some of the premium charge.

[napshnap]

You said you're programer, if so, then soon you'll want to automate your trading (if not already), and then you're gonna be hit with premium charges. So it's maybe reasonable to sacrifice good looking flat graphs for a money you can save by generating more commission by betting.

So, read about premium charges and plan your business accordingly.

[pythonic]

It's a backing strategy on longshots mainly, so Premium Charges probably won't be a problem anytime soon.
What he needs first is to gain some confidence in his method and edge.
Xeres, you said you have a background in math and programming. There are a couple of methods that could help you with analysing your results. Try a Monte Carlo simulation of your results for example. Variance can be huge when backing longshots.
As Linus said, trading out could help to smooth your profits, but you don't want to give away too much of your edge just to smooth your results. Edges are hard to find and hedging can be costly.
I would start with a more rigorous analysis of edge and variance of your system.

[napshnap]

pythonic, he said he wants transform his betting into trading and when he'll got betting transformed, premium charges will be a problem.
And he should think about this problem beforehand.

[eightbo]

...it sounds like you are just effectively laying high prices which long term doesn't work.

Nothing wrong with that provided you have filters in place

[Xeres]

Thanks all, some good comments.

I should probably point out, my current strategy is back bets only, it's not limited to any odds ranges, if there is value and it fits the criteria then it going in the mix. I calculate a relative probability for every horse in every race, then assess the value at that moment in time, this mainly involves getting rid of short priced runners although not always. I then run a secondary process to filter that pool down so I have roughly a bet in each race give or take.

The process is fully automated from start to finish, the 'paper trading' uses the Betfair API to pull all the market info etc. so it's as close to reality as possible.

What I find is the winner will swing from my top rated horses to the next best rated, I've tried loads of ways to figure out why this is, tried lots of optimisation algorithms and run thousands of simulations but it just seems thats how it is - hence why I thought ok I will dutch the top 2, plus it keeps the losing streaks down - but the margins are smaller and the volume is basically doubled. I'm not equalising the profits or stakes with dutching either, I use a slightly modified version of kelly that I came up, it's significantly more profitable than just staking £100 or staking to make £100 regardless.

It's very frustrating to say the least!!

I am trying to figure out if I can use what I have and modify it for a trading strategy but my lack of trading experience is a bit of an issue right now.

[napshnap]

Trading will be a fifth wheel, leave it as it is.