8th February 2016
Hi ,
I’m really excited today because I’m going to show you something that's crucial in deciding whether your going to start betting the selections from that system you’ve been testing live or not!
It isn’t talked about because most people don’t know about it. Of those that do, the majority think it is too complicated to bother with. Now, just to reassure you, it isn’t complicated at all but it will take a few minutes to work out.
Would you rather spend a few minutes working out whether selections are ready to be bet live, with real money. Or lose your money because you don’t want to spend the few minutes it takes to investigate this stat?
You’re probably itching to know what this stat is. Drum roll please…
It is called… Probability Of Negative Return.
I know that it doesn’t sound sexy. I tried to think of ways to spice the name up and… well I couldn’t think of any good ones!
But trust me when I say that boring as it’s name is, what it doesn sure isn’t boring. Particularly to your bankroll.
What this four word stat does is to tell you the chances of going bankrupt over these selections.
There is always some randomness in betting. You could get 10 losers in the row, 1 win and then another 20 losers. But, at the same time you could get 5 winners, 2 losers, 3 winners, 1 loser and then another 5 winners.
This stat is going to take all our results and ask the question… what if?
What if the winners and losers didn’t come in this order?
It looks at every possible combination and then tells us the probability of making a loss over the course of these selections.
Pretty awesome.
You’re going to want to have at least 100 selections to make this valuable but, as always with statistics, the more the better.
In order to calculate this statistics we need to perform the following calculations and I’m going to assume you’re doing this in excel so you can use the built in statistical functions as some get quite complicated if trying to do completely by hand.
1) Calculate the percentage profit on each bet
This means if the bet had odds of 4.25 and won, then your profit is 325% (4.25 - 1 multiplied by 100), if the bet lost then your profit is -100%.
Next we need to…
2) Take the average of the percentage profits
We get all the percentage profits for each bet together and work out the average of all these figures. You can use =average(selection of percentage profits).
3) We need to work out the standard error of the result from step 2
Don’t worry, this is very simple in Excel. You enter:
=stdev(all percentage profits)/sqrt(number of selections)
Obviously you’re going to need to replace “all percentage profits” with the cell range containing the percentage profit figures from step 1 and “number of selections” with the number of selections.
Then the final step is…
4) We calculate the normal distribution of these figures
Okay so I know that sounds complicated, but Excel allows it to be very simple for us to do. You type in:
=normdist(0;average of percentage profits;standard error;1)
You’re going to get a number between 0 and 1, and the closer to 0 that this is the better for you. Don’t forget that these are probabilities. If the result is 0.40 then this means there is a 40% chance of having made a loss over these selections.
If you know that would you start betting on those selections live? I wouldn’t.
I like to see a 0.10 or 10% as a starting point. This I consider within my risk levels to start betting on the selections. However, normally I will continue to watch them a bit longer. If they continue to drop then I will start betting when the number is around 0.08 or 0.07 and will be happy to let the bankroll grow and make profits from that point.
If the selections drop below 0.05 then I will consider adding a significant amount into the bankroll for the selections.
Although it takes a bit of time to work through when you first do it, it will be well worth the effort and allow you to make a fully informed decision as to whether you should start putting your money on the line.
Back next Monday.
Michael Wilding
