24th October 2016

Hi ,

I’m going to start by sharing a question with you.

In fact, I’m not going to start with the question. I’m going to start with the scenario.

Why?

Because I believe that most people don’t realise that this is the question that they need to ask.

So here we go…

Let’s take Joe as an example.

Joe has been trying to solve a little problem that he’s been having. He’s spent a lot of time working on a strategy but he just can’t get it to work. After finishing developing his strategy he performed some what-if scenarios which looked at what would have happened if he’d changed just one or two rule parameters. The results were much better and so paper trading began.

And then… disaster.

During paper trading, the original method massively out-performed the adjusted method. So Joe adjusts his strategy to focus on the original method instead, but then… that starts performing poorly. So, a couple of days later, he adjusts the strategy again.

He knows that he should wait until he has at least 100 winners before making changes, but that could take two or three months.

The bottom line is he thinks he has a good strategy and then hits six consecutive losers which gives him doubts, so he looks to find out why he’s hit these losers and modifies his strategy again.

Does this sound familiar to you?

Have you ever experienced something like this?

Me too!

Joe doesn’t know the reason why he can’t make a profit, but until he learns to ask the question:

What do I need to change in the way I bet?

Instead of…

How do I make a profitable betting strategy?

Then he’s never going to be able to make a profit.

The reason that Joe can’t make a profit is nothing to do with his betting strategies. It’s to do with the way he’s betting. He’s making four key mistakes which, until changed, will mean he’s unable to make a profit even if he’s handed a profitable strategy.

Hang on.

I can see you thinking that doesn’t make sense. Surely if he’s handed a profitable strategy then he’ll make a profit?

Unfortunately that’s not the case because betting is as much, if not more, about the psychology of betting as well as the method of selection finding.

One of my favourite examples is where an acquaintance in the US gave one of his betting methods to 500 people as an experiment. He was using this method to make a regular $10,000 every month from racing.

There was no doubt that this method worked. And the results of the experiment were that:

• Out of 500 people, 475 decided the method couldn’t work based on just reading it
• Of the 25 who tried it, 20 hit a losing day within a week and stopped using it
• Of the 5 who tried it for longer than one week, all stopped using it within four weeks for a variety of reasons such as, it took too long and they wanted to bet bigger stakes but couldn’t do that with the recommended bankroll

So, even when handed a method that is already being used to make a profit, not one person in five hundred made any profit using it. And the reason for that is…

…they all had fundamental problems in their method and outlook of betting. It wasn’t the strategy that was hindering their profits, but their expectations.

Okay, let’s get back to Joe.

He made four critical mistakes and I’m going to show you what these are so that you can recognise them in your own betting if you’re doing any of them.

Mistake 1

After finishing developing his strategy he performed some what-if scenarios which looked at what would have happened if he’d changed just one or two rule parameters. The results were much better and so paper trading began.

Joe had already developed a betting strategy and then, by tweaking the rules, he began to back-fit it. You cannot adjust rules based on a single subset of data unless it contains tens of thousands of selections (and even then it’s not advisable). By doing this Joe was back-fitting rules that had been properly created to data to try and make more profit out of them with the result that it made less.

Mistake 2

During paper trading the original method massively out-performed the adjusted method. So Joe adjusts his strategy to focus on the original method instead but then… that starts performing poorly so a couple of days later he adjusts the strategy again.

When the back-fitted method doesn’t work, which is to be expected, Joe panics and starts trying to change it again to find a profit. But, he never gives any of his changes enough time to actually see if they’re going to work.

Mistake 3

He knows that he should wait until he has at least 100 winners before making changes but that could take two or three months.

Two or three months is not very long to find a strategy that could be making you a profit for the next five years or longer. But it’s also possible to go through past race cards and find selections historically by making sure that you leave at least the last six months out of the data you use to build the strategy. Yes, either way it’s going to take time to go back through past races.

The desire for instant profit is over-riding what Joe knows he needs to do to actually make that long-term profit. He needs to overcome this emotion and be disciplined whether waiting for the selections, or going back through past race cards and testing them.

Mistake 4

The bottom line is he thinks he has a good strategy and then hits six consecutive losers which gives him doubts and so he looks to find out why and modifies it again.

Joe is being unrealistic about what he can achieve. The chances of finding a profitable method that won’t hit six consecutive losers is so small it isn’t worth considering. An average strike rate for a profitable strategy can be considered to be 20%. If you have a 20% strike rate then at some point you can expect to hit a losing streak of 31.

And that’s consecutive losses, not a downswing!

Joe needs to be prepared for that, and the only way that’s possible is to have the right bankroll which can cope with it and to know that even after 25 consecutive losses you could still expect to get another 6 and… it’s possible you may only get one or two winners before it happens again.

That paints a pretty bleak picture, but…

…you could have this kind of downswing and come back to make insane profits!

The key is to be aware of what you should expect in a losing sequence and have a plan to deal with it emotionally when it happens.

Now don’t worry if you recognise some of these traits in your own betting. At one point I’ve had them all as well!

Being aware that you have them is the hardest step. Once you’re aware that you’re encountering some these problems with your betting, resolving them is surprisingly easy.

Best Wishes,

Michael Wilding