Risk Management

[stebbo]

I know a number of us here would actively participate in a thread dedicated to the mangement of risk within horse racing. There have been lively debates on the question of staking plans already so I would like to see discussion go beyond that level.

Hi Doc,

I'll take the bait, and do the starting at this stage.... :grin:

For me, risk management is about bank preservation. And bank preservation is being able to predict the maximum drawdown that may occur.

I define maximum drawdown (MaxDD) as being the difference between a bank high, and the lowest point that the bank reaches at any subsequent time from that high. For example, if you start with a 500 unit bank, get a few winners and the bank goes to 650 units, then you hit a bad patch and the bank drops to 450 units, the drawdown at this point is 200 units. If that's the worst retrace that the bank ever does, then you only need a 200 unit bank to ensure that you don't go broke. Not that I'd set aside a 200 unit bank for this particular system, as 1) I'd probably not bet a system with a 200 unit max drawdown, and 2), I'll always allow another 20 to 50% of this as a buffer, as the next MaxDD is just one more bad losing streak away.

Before I understood about MaxDD, I used to consider the longest run of outs as a measure of bank risk. I was naive in thinking that if the LRO was 9, then I'd add a few to be safe, so I'd only need a 13 or 14 unit bank..... I used to bet 5% of my highest bank nonreducing, and proceeded to lose my first two $500 banks...

Since I've started basing my bet size on the MaxDD of any particular system, I have yet to lose an entire betting bank. This is not to say I'm winning on all these banks, just that I haven't exhausted them yet :smile:

Another thing that I do as part of my risk management is to setup different banks for each of my systems. It makes for an interesting day if I have 5 bets from 5 different systems, as I may have 5 different bet sizes to worry about. However, I feel that this allows me to separte the risk for each system, and ensures that I don't rob the proceeds from one system to help another ailing system.

Cheers,
Chris.

[becareful]

JFC - please enlighten us all on your superior risk management methods!

I have looked at Kelly quite extensively but have dismissed it as too risky and too impractical for horse racing - obviously you disagree so would love to hear your opinion.

I use percentage of bank as my preferred system with the percentage depending on the system I am using and the level of risk for that bank (like Chris I allocate seperate banks to different betting systems). For my two current horse-racing "systems" I use 2% and 5% of bank (reducing) and for tennis I use 5% of bank non-reducing.

[darkydog2002]

Have you fellows ever used Malcolm Knowles BET SMARTER AND WIN.
In my opinion thats the best risk management stratedgy of all time.
Cheers.
Darky.

[becareful]

If you are referring to "The Power of 10" staking plan in that book then yes I have done thorough testing on it (a lot of it I published on this forum). That testing left me less than impressed with it underperforming percentage of bank staking in most of the test cases I ran through it (these test cases were real betting results from my own systems and from several other people who sent me their betting records for testing).

[stebbo]

Hi Becareful,

I see that you're using a reducing percentage of bank. This is an excellent way of protecting the betting bank, but I've always felt that it performs worse than flat stakes, since you'll normally be betting less on the winners and more on the losers. Have you done any modelling that supports or refutes this?

Cheers,
Chris.

[becareful]

Chris,

I probably should clarify - I don't generally recalculate the bet amount after every bet and I round to the nearest $10 anyway. This means the bet size will only reduce after a few losing bets (or quite a few on the 2% system). For example on the 5% racing system if my bank was $1000 my bet size would be $50. I would only reduce it to $40 if my bank got down to $800 (so 4 losing bets in a row for example).

I have found this "stepped" reducing bank method seems to give the best overall results for me. It takes advantage of the winning streaks as your bet size steps up after a winner and if you get a few nice wins in a row it will take advantage of this. On the other hand in a losing patch your bet size will decrease to preserve the bank until you start hit the winners again.

In practice the average bet size on winners and losers is identical as essentially what I am doing is betting flat stakes at a given level for a while and then readjusting the staking level either up or down depending on the bank (hopefully always adjusting upwards!!!)

In theory with the % of bank approach you will never go bust as you will always only be betting a small portion of your remaining bank (although in practice of course there are minimum bet sizes so once you get down to that level you are in trouble!).

_________________
"Computers can do that????" - Homer Simpson

<font size=-1>[ This Message was edited by: becareful on 2003-10-20 11:30 ]</font>

[darkydog2002]

BECAREFUL.Its kept me ahead of the mob and quite frankly i wouldn,t use anything else.
BUT everyone to their own choice.
Cheers.
Darky.

[stebbo]

Hi Becareful,

sounds like a good plan, and is similar to what I plan to do with my staking. I have one particular longshot system which backtested shows a maximum drawdown of 65 units. I add another 50% to that, so call it 100units. I'm betting 1% of my highest bank non reducing. My plan is if (ok, ok, when) it gets to a 65unit drawdown, I shall halve my bet until it gets back above the -65 units, which effectively gives me another 65 units drawdown.. If it gets to that level, then the system is a croc and deserves to be chucked!

Cheers,
Chris.

[crash]

The theory sounds good Stebbo, but what bothers me is if you put your system into a graph form of peaks and troughs, the problem becomes when to enter the graph with bet 1 [assuming level stakes bets here].
Allowing an MRO of say 13 [and that would require a strike rate nearing 50%] and using your example of 200 of max drawback, if I enter the graph with my bet 1 when you were on 650 and a 200 drawback hit, you would be on 450 and I on 300. You would be on a 150 buffer purely due to entry point luck. If a series of MD's hit, or even close to MD [it does happen] with small gains between, I wouild be out and you in [maybe], purely due to luck.

Becareful,

Wouldn't stepped bets often produce the bigger bets hitting loosers and smaller bets hitting winners producing no advantage other than allowing more bets for your $ [perhaps] but not necessarily a greater chance of winning due to ever smaller collects ?

Cheers.

<font size=-1>[ This Message was edited by: crash on 2003-10-20 17:01 ]</font>

<font size=-1>[ This Message was edited by: crash on 2003-10-20 17:06 ]</font>

<font size=-1>[ This Message was edited by: crash on 2003-10-20 17:13 ]</font>

[stebbo]

On 2003-10-20 16:55, crash wrote:
The theory sounds good Stebbo, but what bothers me is if you put your system into a graph form of peaks and troughs, the problem becomes when to enter the graph with bet 1

Hi Crash,

the point you make is the exact thing that my MaxDD measures. My MaxDD is the largest value between ANY peak and a subsequent trough. I do this for exactly the reason you state... where I enter a series of bets will determine my required bank, and that pr1(< Murphy has predetermined that I always enter a series the very bet AFTER a bank high, and the bank is about to enter a long period of drawdown.

Cheers,
Chris.

[kenchar]

Stebbo,
Have to put my little bit in, and I certainly ain't any expert on staking,ups & downs etc. I personally flat stake, sometimes I win sometimes I lose BUT when I get a $10 winner it more than makes up for the $3 losers.
I see subscriber services that give you smaller bets on some selections than others.
My argument is why have a smaller bet on some, if they dont think they have a good chance of winning why pick them in the first place.
As far as ups and downs I dont think anyone can predict this.
You can run 10000 races through a program and come up with X put your hard earned on and you will come up with Y , every race is different.
I know I sound a bit cynical but to me these are facts.
If it was all so easy we wouldnt have 100+ ratings, system services. dial a bet etc etc etc etc.
I have had good results from this site, and some rotten ones too.I am well in front at the moment but who knows how long it will go (how long is a piece of string).
What I am trying to get across is you have all these professional sites around who have access to things that we probably dont and they sell their selections.
Why? just bet them themselves and rake in the profits, It cant be done racing is racing and every race is different.
Hope I have'nt spoiled the thread.

Cheers

[stebbo]

On 2003-10-20 18:57, kenchar wrote:
Stebbo,
Have to put my little bit in, and I certainly ain't any expert on staking,ups & downs etc. I personally flat stake, sometimes I win sometimes I lose BUT when I get a $10 winner it more than makes up for the $3 losers.
I see subscriber services that give you smaller bets on some selections than others.
My argument is why have a smaller bet on some...snip...

Hi Kenchar,

With all due respect I think you missed the point of this thread... The aim of this thread is to discuss risk management techniques, not staking techniques. The two are interrelated of course, but can be treated separately.

Of course, the best risk management technique I know of is to not bet losers, but I haven't quite mastered that one yet

:lol: :lol: :lol:

Cheers,
Chris.

[becareful]

Becareful,

Wouldn't stepped bets often produce the bigger bets hitting loosers and smaller bets hitting winners producing no advantage other than allowing more bets for your $ [perhaps] but not necessarily a greater chance of winning due to ever smaller collects ?

Cheers.


Crash,

In my case I am currently getting ever bigger collects as the bank is going up not down. Obviously with this system you first need a selection system that is showing a profit not a loss! (But in my opinion that is a basic requirement to make a profit anyway - I don't believe chasing losses with a staking plan will work in the long run). For example in the last 3 months of betting I have gone up 3 "steps" but have yet to have to step backwards.

To illustrate lets say I start with a bank of $1000 with a bet size of $50. In this case I would step "up" to a $60 bet if the bank gets to $1200 or "down" to a $40 bet if the bank falls to $800. Once I get above $1200 (so bet size = $60) then I will step "up" to $70 if I get to $1400 or back "down" to $50 only if the bank falls back below $1000. In this way I am not constantly changing bet sizes each time I get a loss so I have a very good chance of hitting a winner with my higher bet size before I have to drop back down.

Now the system I am using with this 5% approach has a strike rate of around 60% so I am fairly confident of getting a winner within 4 bets each time - with a lower strike rate system you need to use a lower % of bank otherwise you would constantly be changing bet sizes (not to mention the risk of going broke).

Just for the interest I compared my POT for the last 3 months using this stepped system v's a pure level stakes method (with the same starting bet size). At level stakes I would have had a POT of 30% and a profit of 33.8 "units". With my stepped bets the POT was 28% but the profit was 35.5 "units".

<font size=-1>[ This Message was edited by: becareful on 2003-10-20 21:55 ]</font>

[jfc]

This discussion is already flawed because it didn't start optimally, then quickly descended into darkness with DarkyDog's effort.

It should have started with the Kelly Criterion, but I'm prepared to bet that none of you understand it. I didn't, until finding this over the weekend.

http://www.jimgeary.com/poker/letters/KELLY.HTM

All of you should read through it a number of times to milk as much wisdom from it as your mathematical capabilities can handle.

Using its definitions the optimal Bet to Bank ratio = Edge/Odds

So if you have a 35% Edge for a 7/4 shot. You should stake 35*4/7 = 20% of your Bank.

Despite the simplicity of the formula, to my amazement it gives the precise optimal figure.

So anyone who talks about "half Kelly" (whatever that is) is clearly deranged. Why would you replace the optimal stake with a sub-optimal one?

Before exploring some case studies found here about abuses of the Criterion, I need to introduce this formula for converting probabilty to odds (in this context)

Odds = (1+Edge)/Prob - 1

Also, I should add that as by definition Kelly needs edge, odds and a proper bank to work, and typically I have none of the 3, so I never use it.


<font size=-1>[ This Message was edited by: jfc on 2003-10-21 14:17 ]</font>

[darkydog2002]

With all due respect to every one it sounds like a lot of academic wank to me.
Cheers.
Darky.

[crasher]

Hi all,
To me risk management is crucial to success at the punt.
Over many years I have tried a variety of approaches with varying success.
I have now lifted the "retirement staking plan" from the Grandstand Publishing website and have been using it with great success for some time.
I aim to achieve 30%+ winners at an average of 3/1 or better and with a seperate bank for each selection process I use all are well in front.
The other problem ,I find is the old case of removing your head and putting on a pumpkin when you are in front , to give an example sat , Delzao biggest and first bet of the day recouped total outlay for the day plus a small profit. Off goes the head on goes the pumpkin an additional 5 bets that all lost luckily 3 of my original bets won and I made a profit.Nonetheless I had thrown away $500 on stupid bets.
I am usually in control but one slip and down $500 !!!!
What is needed is good risk management plus discipline....
Crasher

[becareful]

JFC,

Welcome to the discussion (flawed as it may be)!

In THEORY Kelly is fantastic and, as you point out, gives the optimal staking to increase you bank at the fastest rate. In PRACTICE however there are several major problems with it that limit its usefulness for horse racing and sports gambling.

Firstly the Kelly formula requires you to know the “edge” you have on each bet. As far as horse racing goes this means you must be able to say with certainty that your selection has say a 57% chance of winning the race so that you can work out your edge based on the odds available. Now maybe you are such a good racing analyst that you can come up with specific numbers like that but I am buggered if I can. The best I can do is come up with an approach that says if I back certain horses within certain odds ranges then in the long run I will end up with say a 25% advantage IN THE LONG RUN. Now whether I have a 25% advantage on a specified runner, or a 50% advantage or only a 5% advantage I really don’t know with any certainty so what value do I plug into Kelly? At one time I was trying to come up with a specific price for a runner and then only bet when it was over that price but do you know what I found – when runners started well over that price (so in theory I had a big advantage) then my strike rate was poor but when they started below that price (so no bet as no advantage at all) the strike rate was very good. Had I been using Kelly I would have gone broke real fast!

The second problem (in a way linked with the first) is that the Kelly formula can give huge bets when your selections are at short odds (so place betting, sports betting, etc). For example lets take a sports bet which you assess as a sure thing but the bookies are offering even money on. Lets say you assess your edge as 50% then your bet is .5/1 = 50% of your bank Do you really want to be risking 50% of your bank on a single bet? Are you that sure of your advantage? Using full Kelly on bets where the odds are frequently in the odds-on range results in your bank jumping around like a hyperactive kid with a sugar rush – you can easily double you bank one day only to see it down to half of the starting bank a couple of days later. (This where the half Kelly and quarter Kelly come in).

So I would be interested to hear how you accurately assess the edge for every single bet and if you have done any past analysis on how good these assessments have been in practice?

[Shaun]

BC you are correct in your ways even thought your bet percentage of 5% is quite high for me it is still a safe option.
I have used many different types of stakeing but come back to the old percentage of bank bet...it is the safest bet of all with the ability to get big returns as your bank grows.....no matter how good your selections are and what your percentage of winners are...no one can determine when there wins will come...and this is why other types of stakeing lose with the exception of flat stake bets....even if you have a 60% win strike and have won the last 5 years...if you get a bad loseing run...and it will happen....you are in trouble even if you don't lose the bank you will have a hell of a time getting it back to where you were makeing good money.

[Chrome Prince]

In principle Kelly or even Half Kelly is a way of taking advantage of overs, but for mine using overs to determine bet size in percentage of bank is dangerous and increases the chances of going bust.

Whether this thread should have started with the Kelly Criterion or not, it is one of the most dangerous and obviously lucrative but depends entirely on the roll of the dice.

Becareful's percentage of bank (increasing /reducing) is the safest way of minimising risk and taking advantage of good fortune.

If you know the fair price you should be receiving about your bet and can plainly see overlays (your assessment must be correct), then using MODIFIED Kelly is the best option.

I would bet according to the overlay, however, using this to determine the percentage of bank to bet is not, in my opinion, the correct way to do it.

If anyone has a spreadsheet of bets where it shows a level stakes profit over at least 100 bets and the average dividend is more than $2.00, I have a plan I'm willing to share and show how I can increase the POT usually by at least 5%.
I'm not interested in your system, you can leave out the horse names and race numbers if you wish, I just want to demonstrate something for my own benefit as well.
They must be realtime bets though.

send to: racestats at hotmail dot com and I'll return my findings within a day with explanation.

[becareful]

Shaun,

The 5% is quite high because that particular system has a very high strike rate and I am willing to put up with some volatility in the bank. Obviously you need to work out the appropriate percentage for each “system” depending on the strike rate (higher strike rates can have much higher percentages) and how much variance you are willing to have in your betting bank. So a low percentage will give you quite a slow but steady growth (assuming you have a profitable system!) whilst a high percentage will accelerate the growth but you will have more “ups and downs” as you go. In a way it is all linked back to the Max Drawdown figure that Chris mentioned initially and working out how many “steps” backwards you are willing to take in this situation – you can then work out what % will give you that result (in my case the 5% works out at about 2-3 backwards steps in the worst case drawdown scenario I have estimated).

The scary thing is if I used Kelly I would be betting around 20% of my bank on every bet :eek: (maybe that would give me a better profit in the end but the other week I would have lost 50% of my accumulated bank when I had 3 losers in a row – a bit too aggressive for me!).

[stebbo]

Hi All,

again might I remind us all that this thread is about Risk Management, not staking. Almost everything I've ever read about Kelly stipulates that it increases risk. Therefore, as a RISK MANAGEMENT technique, it's a poor one. (Please note that I'm not commenting on it's suitability or performance as a <u>staking plan</u>, just on it's risk managmenet capabilities).

To Crasher:

the retirement staking plan is ok as far as risk goes, but a better one is the one that EJ Minnis espouses occasionally over at Ausrace. The main difference between EJ's and the retirement is that the target is a miserly one PER RACE. Rather than trying to achieve a target per series of bets, it attempts to achieve a small target per race, and the target is suggested as around 10c per race. Therefore, while the entire series of bets are in front, it will not increase the multiplier.

The major problem I have with a lot of loss chasing plans is that they tend to increase the multiplier as soon as you get one or two losers in a row, regardless of whether you've you've just won 10 in a row. Each time you reach your target, you start a new series of bets, and if you lose the first one, you start increasing your multiplier almost immediately. With a "per race target" approach, it effectively uses past profits to soak up a few losses. I have actually written a program which implements this and have offered it freely to anyone who wants it.

TO DarkyDog2002..... thank you for your well thought out and insightful comments :roll:

Cheers,
Chris.

[La Mer]

La Mer: I think Stebbo is correct - we appear to have gone a little off track on this discussion - perhaps instead of being name 'risk management', 'money management' might have been a better heading.

Anway, for my two bob's worth, whatever the benefits of Kelly’s Criterion in regard to optimizing a punter’s bank, in its truest form it fails to measure as a practical tool.

I know of people who use Kelly, but not one of them has claimed to be an adherent to the use of a full Kelly.

So where does it fail? On two out of four main points.

Barry Meadow a US pro punter and considered to be one of the smartest handicappers/money managers around offers a four point criteria for the correct use of money management:

a)keep records on all bets and expenses;
b)do not overbet in relation to your bankroll;
c)bet more when the value is greater; and
d)bet within your emotional threshold.

Clearly, for most punters, the Kelly criterion fails in regard to both b) and c) above.

As Becareful succinctly points out and as would be true of most of us, to bet(say)50 percent of your bankroll on one horse is way beyond our emotional threshold as well as totally overbetting in relation to the bankroll.

So what are some of the better methods of maximising profits (assuming a profitable set of selections)?

There are variations to the Kelly, such as the half-Kelly as well as another variation named the Super-Kelly (also known as the Hyper-Kelly). However, to operate effectively, Kelly betting requires a precise estimation of a horse’s chances and therein probably its downfall as even a small variation in a horse’s estimated chance can mean large errors in application.

I personally use a progressive level stakes milestone approach, that requires a 4 percent level stakes bet until such time a predetermined milestone level of bank is reached whereby 50 percent of the profits are withdrawn and placed into a reserve bank, betting then recommencing at 4 percent of the higher bank level, i.e.
$1000 commencing bank equals $40 bet (1000*4%)
When bank reaches $1250 - half the profits withdrawn ($125)
Recommence with new bank of $1125 equals $45 (1125*4%)
Continue in this fashion until emotional threshold reached, then go back to last milestone and recommence.

So long as the profits continue, this can go on ad infinitum, or until there is enough confidence to lift the emotional threshold.

What I mean by this it that there is little point in (say) starting at $40 with bets rising to $200 over time, if the emotional threshold is reached with $100 bets.

When the heart starts pounding, when a punter starts to regret the fact that a bet went down with such an amount on it that they say to themselves such things as ‘that was a week’s pay’, or ‘gee the amount of that bet would have bought a new TV’ then the emotional threshold has been over-reached and the punter needs to have a big rethink, remembering that they should only be prepared to lose what they can afford.






<font size=-1>[ This Message was edited by: La Mer on 2003-10-21 15:45 ]</font>

<font size=-1>[ This Message was edited by: La Mer on 2003-10-21 18:48 ]</font>

[Chrome Prince]

In my opinion any staking plan should do two things....

Maximise profit and minimise risk.

Therefore I think that staking plans are pertinent to the risk management argument.

[Dr Pangloss]

Wow - there's a lot of good things on this thread already. Most of what follows is not new but perhaps just a different spin.

The following risk management plan comes from a source that will remain anonymous lest the censors razor is invoked.

Bundle a continuing series of bets into Blocks of say 20 bets (30, 40 or whatever). The Starting Block Bank remains static throughout each block of bets irrespective of current win/loss - and is only recalculated at the commencement of each new Block of bets.

Individual bet size is calculated as a % of the prevailing Block Bank. This allows for different sized bets (1%, 2%, 3% etc etc) and all bet sizing whims including Kelly.

At the end of each Block a profit or loss is declared. A proportion of Profit maybe siphoned off for preservation - a new starting Block Bank is calculated from the residual profits plus the proceeding Block Bank. Hence, individual bet sizes in the forthcoming Block of bets will be proportionately larger.

In the event of a Block of bets producing a loss the new Block Bank remains EXACTLY the same as the proceeding Block Bank. Accordingly, the following series of individual bets remain the same (by proportion).

Sizing of individual bets as a percentage of Bank must pay homage to Maximum historical DDown and then some (Stebbo has either been reading my mail or has read the same book).

As for Staking Plans such as Power of Ten the good news is that I own the Software Edition. What am I bid?

[crash]

With due respect to all posters, I think we have all started well on the subject of risk management but ended up on staking plans. Have a quick squiz and you will see what I mean. Taking a leaf from Stock Market capitalese, the correct term I think is "Asset allocation management".

Cheers.

<font size=-1>[ This Message was edited by: crash on 2003-10-21 18:13 ]</font>

[Chrome Prince]

In that case the thread may as well stop here and either bet level stakes or percentage of bank reducing.

My offer stands to anyone interested in testing my staking plan which maximises profit and reduces risk. (see above).


<font size=-1>[ This Message was edited by: Chrome Prince on 2003-10-21 19:20 ]</font>

[Dr Pangloss]

crash

Risk Mangement for me includes two competing requirements, GROWTH and CAPITAL PRESERVATION. Aside from backing only (more)winners (or less losers) GROWTH can only be achieved by increasing bet size (increased RISK). The Kelly criterion is proven to optimise GROWTH but, as others have pointed out, only at unacceptable levels of exposure to CAPITAL. So, how to balance GROWTH vs CAPITAL PRESERVATION???

I think you mentioned representing the ups and downs of equity within a graph. The plan outline above is specifically designed to smooth out those bumps and troughs, and furthermore, is in sympathy with the punters psychologic health (i.e. sets short term goals, take rewards).

I thought it un-necessary to spell this out in my original post.

[Fryingpan]

You take the risk in order to make a profit.

* Criminals take the risk in order to make a profit.

* You buy an investment house to take a risk in order to make a profit.

Let's talk profit and then risk will come into the discussion.

I haven't heard risk yet.

* Short odds less risk versus long odds high risk.

* High strike rate less risk versus low strike rate high risk.

* Calculated run of outs before loss of bank versus Stop strategies to loss of bank.

* Streaks and THE RISK of streaks.

* How to evaluate your own Edge and how that equates with streaks

* How you back a race on identified factors versus how you back a race on actual measurements of ability.

* How much complacency and inertia stall one's ability and accuracy in finding accuracy in measuring risk.

* How to rate a method. Which is how risky a method really is.

* What are the 'what ifs' that are never considered that make up risk.

* What new things make risk analysis difficult to measure in a given field

etc etc etc.

[Chrome Prince]

On 2003-10-21 21:37, Fryingpan wrote:
You take the risk in order to make a profit.

* Criminals take the risk in order to make a profit.

* You buy an investment house to take a risk in order to make a profit.

Let's talk profit and then risk will come into the discussion.

I haven't heard risk yet.


Risk is relative.
Would you risk 100% of your bank to make 1% profit?
The discussion has been criticized for tilting towards staking, yet surely the staking is key to both the profit and risk element.
In my opinion there are various criteria to be considered before manging risk and staking to arrive at a determined or undetermined profit.

a)Does your method show a level stakes profit and if so over how many bets?

b)Does all the profit come from one or two outsiders or is it consistant?

c)What is your average dividend?

d)What is your strike rate?

e)What is your current longest run of outs and what is the mathematical expectation for same?

From here you can calculate the level stakes risk.

Perhaps this is the time to mention measuring whether or not your method ,should hold up in the future.

Obviously nobody can predict the future, but risk can be minimized by having the greatest amount of data available to arrive at a reasonable conclusion.


* Short odds less risk versus long odds high risk.
[quote]
It depends entirely on how the selections are staked (oops that word again).
Short odds are not necessarily less risk, the expectation is that one would have a shorter run of outs and level staked less chance of ruin.
But do you have more or less of a chance of actually making a profit?

It again depends entirely on how we are defining risk (Risk of ruin or maximum drawdown or something else).

Level staked the risk of ruin is far less on the shorter the odds are.
But applying Target betting or even Kelly the risk of ruin is much higher than longshots because you are effectively chasing on short prices.

[quote]
* High strike rate less risk versus low strike rate high risk.


SEE ABOVE


* Calculated run of outs before loss of bank versus Stop strategies to loss of bank.


One can calculate the maximum run of outs and calculate a stop loss procedure similar to Stockmarket strategies.
What to do then once you've reached your stop loss?
Start from square one and cop the loss or modify the method or staking again.
I do not hold too much with stop loss strategies in general because this game only enables a very small relative POT, and to regain losses either now or in the future involves delving into unchartered territory.


* What are the 'what ifs' that are never considered that make up risk.


What if my internet connection dies in the middle of placing a bet, something happens to distract you and you miss the one bet that would have made a profit for the month?
What if the power goes out, the ISP packs it in, you have to reboot (MacroHard), the family needs you attention for the day etc etc etc.

Over to someone else...

[stebbo]

To All: Apologies if my earlier comments about staking plans implied I didn't think staking plans should be discussed... What I meant to say was that I didn't want this discussion to become one about the merits of one staking plan vs another. Discussions about how staking plans affect risk are clearly part of the discussion.

To FryingPan: You make some excellent points about elements of risk that have not yet come under discussion directly. A few posts have touched on some of the points you raise. Becareful's selection of a 5%-of-bank for his 60% strike rate system for example.

Your points about odds and strike rates are valid, but I think these are decisions that are taken well before we start to think about risk. Personally, I don't particularly care about odds and strike rate, as long as SR times by Odds is greater than 1. I must admit to leaning towards the longer priced selections, as it's an incredible high to pick a $20 longshot, whereas picking Lonhro to win at $1.80 is boring... (In my opinion).

* How to rate a method. Which is how risky a method really is.

I think this is a very interesting point, and one that I hope people here have some ideas about. I personally use MaxDD as a measure of a system's RISK and I also very much like Chrome's SV calculation as a system measure. I've tried to make the point (perhaps badly) that I think Longest Run of Outs is a very poor measure of a system's risk.

Personally, I'm on my third "system risk measure". When I first started this journey, I used strike rate as a measure of a system's risk. "Gee, a 50% strike rate, I can be half my bank and be rich in no time"... I kid you not, that was an initial thought I had many months ago when I was very, very green......

Another extremely vital aspect of risk that I think it was crasher who mentioned in passing is DISCIPLINE (BTW Crasher - I hope you got some of the $6 or $7 being offered about Delzao by the bookies????? - I took $6 on IAS early on Sat as I had to go out :smile: )

Discipline is perhaps THE most important element in risk management. I for one find it very difficult to stop myself from looking for something to bet on when my systems throw up none or just 1 selection for the day... I don't have any impulses to bet on more nags if I've just scored a big win, only when my systems have only a few bets on a given day.....

Another issue that hasn't yet been touched upon is the natural inclination to fiddle with a given system. On another thread here I've stated how I like simple systems, and I think that once you find a system that seems to work, you should run with it for a period of time... I know a lot of people will keep "fiddling", cutting a few losing bets here, adding another filter there, all the while trying to get that "super system".... I try to avoid this urge as best I can.

Cheers,
Chris.

[becareful]

Oh JFC you've done it again (apologies to Magoo)!!!

QUOTE:
Also, I should add that as by definition Kelly needs edge, odds and a proper bank to work, and typically I have none of the 3, so I never use it.


Just reread your edited post to find that little gem appended to the end of it!

:lol: :lol: :lol:

Here I was thinking we had a Kelly expert in our midst who was going to tell us how to apply it successfully to horse racing and you haven't even tried to use it!

Reminds me of some of the lecturers from my University days espousing all these great sounding economics theories. Only problem is they have never worked a single day outside the University system so have no knowledge of how the real business world operates!

[jfc]

BeCareful,

you are a fool.

After watching more and more nonsense on this thread, and wondering how you and others had not read my considered post fully, all I did was embolden the part that no one seemed to spot.

That gem was always there, I did not append it.

[becareful]

Hmm,

You admit that you have no bank and no edge. You post a message stating that the topic should have started with the Kelly Criterion - but you have never used it yourself and clearly don't understand the limitations of it. Any yet you dismiss most of what has been posted here as "nonsense" and call people fools????

There have been some very useful bits of information on this thread from some quite knowledgable people - unfortunately it seems that you are to ignorant and/or arrogant to notice. Its a real shame as it could help you in building up a bank (and there are other useful posts to help you with the edge bit) - something you admit you need.

<font size=-1>[ This Message was edited by: becareful on 2003-10-24 16:16 ]</font>

[jfc]

BeCareful,

to my recollection you are the only one here I've called a fool. For indisputable presented reasons.

You continue exposing your stupidity with your response. Deliberate misinterpretations of my position, along with outrageous unsubstantiated inferences about my capabilities. I could spell them out for you, but you'd learn more by re-examining your goofs.

Onto general comments.

Too much of this discussion is contaminated by staking plans. What do they have to do with risk management?

Typically staking plans are merely a tool for charlatans.

It's very hard to find any long term edge at flat or proportional stakes, so the shonk system sellers merely backfit a staking plan which conveniently has the biggest stakes on the winners.

Furthermore staking plans often encouraging overbetting so as to portray stupendous running banks. Until the inevitable run to ruin. In such cases they'd be the opposite of risk management.

If you must go on about staking plans then start a new discussion.

[becareful]

:roll:

1. Maybe I misinterpreted your position because I can't bloody well work out what your position is??? As far as I can see you joined this particular discussion claiming Kelly was the solution to risk management BUT you have never used it yourself. When several people (myself included) questioned the viability of it you remined silent. WHAT IS YOUR POSITION ON THIS TOPIC???????

2. I NEVER mentioned staking plans (in the sense that you mean anyway) and anyone who has been on this forum for a while will know that I generally oppose them - particularly ones just intended for loss chasing.

3. Unlike you I don't dimiss out of hand the fact that there may be staking plans that do reduce or help manage risk. I certainly think there is merit in this discussion if we can get away from the "Don't bring up staking plans" attitude and instead move to "Can staking plans help manage risk in any way?"

BTW Kelly IS a staking plan so you have broken your own rule there! In fact Kelly is probably one of the WORST staking plans (except for straight progression betting with no limits) for OVERBETTING which you seem to be opposed to - seems a bit of a contradiction in your position there.

[quapi]

Please restrict comments to the arguments presented and not take those comments a step further by calling anyone a fool etc. etc.

[Chrome Prince]

I'm staying out of this discussion topic as I've made my positon clear and it seems to have been dismissed, so no use banging your head against a brick wall.

However, I have been recently conversing off forum with Darkydog2002, stebbo even before he joined this forum and Becareful for over a year now.

I must state that Becareful is no fool. He is far more intelligent than myself, and I don't consider myself a fool.
He has freely shared his wisdom in many areas with me, and I'm better off for his input and intelligence on all matters.


<font size=-1>[ This Message was edited by: Chrome Prince on 2003-10-25 14:36 ]</font>

[crash]

As far as staking goes I can't see anything wrong with the bigger the overlay the bigger the bet. As far as risk managemant goes, try getting a no nonsense wife to fear.
If you can't pick enough winners to steadily stay in front, at least reduce your bet cost until it dosn't hurt [sometimes I'm betting $2 a bet and at others $500]. If you are not having a good time you are betting too much. If profit is your only criteria in punting and you are not looking like you ever will turn a profit, by some TAB Corp. shares instead and give the game away.

Cheers.

<font size=-1>[ This Message was edited by: crash on 2003-10-26 18:38 ]</font>

<font size=-1>[ This Message was edited by: crash on 2003-10-28 07:48 ]</font>

[becareful]

Thanks Chrome Prince - you are certainly no fool yourself and have given me more than a few good ideas and pointers - it is a shame that some people have such a high opinion of themselves that they close their minds off to other ideas.

I am sure anyone who has been here a while can make up their own mind as to whether I am a fool or not. Of course everyone is entitled to their own opinion but I stopped caring what other peoples opinions are long ago!

[crash]

I always enjoy Jfc's gameness [and self- rightiousness] but it is often ruined by lack of class in the running as innuendo is always a classier way to deride.

I too, and probably many others here [and in other forums too] have enjoyed Becareful's informed posts and I include here the adversarial cut and thrust ones [wherin my mouth sometimes increases in size to be larger than my brain] that are always great sport free of personal insults but enjoyable innuendo.

Cheers.

<font size=-1>[ This Message was edited by: crash on 2003-10-27 09:19 ]</font>

<font size=-1>[ This Message was edited by: crash on 2003-10-27 09:22 ]</font>

[Chrome Prince]

Back on the topic of risk management, here goes a long post :wink:

I've been doing various analysis over the past few days and some results and ideas have come to mind after running numerous scenarios.

These are not gospel, just my ideas after observation for minimising risk.

1. Calculate the risk of your "system" by comparing the maximum drawdown with POT.

Stebbo demonstrated this earlier and he got me thinking - thanks stebbo!

Ideally your risk must be less than your POT.
Otherwise your risk is greater than your profit and sooner or later you'll bust.

The greater the difference or ratio between POT and risk e.g. 2:1 the better.

This is no guarantee of future profits, but based on the data available, this would be perhaps the best guide.

Maximum Drawdown should always be less than the profit, as the entry point of a series of bets can make or break or even give false optimism.

Example: Start with $1,000 have a good run and win $800. Have a bad run next and lose $1,000 but you're only down $200 on your initial bank.
Had you entered at the second point you'd have lost your entire bank.

2. An increase massive increase in profit due to staking can also give false optimism.

Elsewhere I've heard:
"But it's working"
"I haven't gone bust yet"
"I don't give a ### about POT, profit is all that matters"

At the end of the day profit is not all that matters, to me, risk is all that matters.

What's the use in making 500% profit if the risk of losing it all is 600% or even 1000%?

Sooner or later all that profit will be gone unless some form of insurance or safeguard is applied.

3. As a guideline to system viability, I use the profit divided by the average win dividend.
This is a guide only as a couple of longshots will distort the result.

Example:
Profit is $79.50
Average Dividend is $2.10

SV calculation is $79.50 / $2.10 = 37.86

So the profit comes from 37 plus winners which is very good.

While this is not exactly Risk Management by the general definition, it is salient to the argument, because the continuing viability of a "system" (for want of a better word) must be considered the major risk of the investment regardless of the staking or investment method.

Hope this generates some discussion.

[El Gordo]

Paging becareful to the foyer please :smile:

[Chrome Prince]

I felt sure my latest addition to this thread would have sparked some interest.

Ho hum.

:sad:

[gunny72]

I have found the discussion in this thread interesting but I feel some of the analysis has a serious flaw and that is basing future bets on past results. For example using past POT as a indication for future POT and the basis of future staking strategies. One thing my years at punting has shown is that racing does not follow simple patterns and this is why most systems fail.

My idea of risk management is minimum outlay for maximum return. I have discussed my level staking ideas at length (and possibly ad nauseum) in another thread but no one has yet shown me the flaw with my analysis - other than the need for patience.

John

[crash]

Chrome,
I'll have a go at a reply.

What you were saying sounds correct on paper but you cant work out things like profit = 500% but risk was 600% [?]. The method is known as "Special pleading"[create a false "fact" and then base your argument on it]. The only fact is the 500% profit, not the 600% [or whatever] risk.

Risk [odds if you like] is a subjective thing in horse racing as in everything and can't be measured with maths [the goal of a system creating a golden egg], If so there would be a maths formula to work out precise odds of a horse winning which as you know, can't be done. Your 600% [or whatever] risk might have in fact been .01% or 1000% depending on the subjective measure [point of view or a collection of subjective measures].

Such things as tossing a penny can be worked out as a 50% chance of head or tails being equaly thrown in eventual totality [pure maths] but not where you are going to be score wise even after a million future throws. You could be rich or you could have lost a fortune and your shirt at any future point.

Gunny makes a good point about backfitted stats. They can never be a calculation of a certain future position profit wise. It's the old penny tossing scenario. Have a thousand flips and note your score, then have another thousand and you will see what Gunny means. You might get a similar result but it could be wildly different too just as easily. I have seen the Maths. on this penny thing by a mathamatician and it soundly dumps the notion that future probability is equal to past probability except to an infinate point of a 50% x 50% result [and we will never live that long].
Your chances are always 50% of throwing your choice per throw but say after your 1000th. throw you could have 300 wins to 700 losses just as easily as 700 wins and 300 losses. Your chances of either are exactly 50% [or if you like, your "risk" of either result is 50%].

A punter could back a horse for $10000 to win at 2/1 and think his chances of winning are even. You could be [while choking on your pie] thinking, "what a mug, that nags chances with that weight at this distance are about 1000/1. The horse wins. What were his chances or true odds of winning? Backfitted they were 100%.

Chance or risk in Horse racing I believe is nothing more than a subjective guide. The reason some punters win and some loose is that some guess [judge future probability and therefore are less wrong] better than others most of the time.

Risk management can only ever be subjectively measured and as humans we do that well enough to survive as a species but not well enough that we all can get rich on the punt.There can never be a formula [but we can all have a great time trying to find one].

Cheers.









<font size=-1>[ This Message was edited by: crash on 2003-11-01 04:36 ]</font>

[Chrome Prince]

On 2003-11-01 00:26, gunny72 wrote:
I have found the discussion in this thread interesting but I feel some of the analysis has a serious flaw and that is basing future bets on past results. For example using past POT as a indication for future POT and the basis of future staking strategies. One thing my years at punting has shown is that racing does not follow simple patterns and this is why most systems fail.

My idea of risk management is minimum outlay for maximum return. I have discussed my level staking ideas at length (and possibly ad nauseum) in another thread but no one has yet shown me the flaw with my analysis - other than the need for patience.

John




Hi gunny,

You are of course correct and level staking is the least risk.
But it doesn't really cover the maximising the return part.
I'm looking at the best combination of both.
There's absolutley nothing wrong with level staking though and is the safest.

As for basing staking systems on past results....

I agree, but when you have nothing else to work with....
What I normally do is get a very large sample of results,(this is always preferable) and run a staking plan - then use a filter option on an excel spreadsheet to sort the results numerous times so that different patterns emerge.
Then you can work out "IF" the results occurred at different times or in a different order etc.

[Shaun]

Chrome Prince....i do agree with your thoughts on level staking.......the only difference i use is bank percentage bet....i guess this is not level staking in the normal sense but it depends on when you recalculate your bank....i do it when my bank has risen 20% i have done many tests over time and i find that thie type of bet performs as good if not better than most of the staking plans in terms maximising profits....if you could make 10% on your bank every month and used a percentage bet you can double your bank every 8 months.....i am not saying there are better staking plans out there....but for someone just starting out punting and is looking for the safest staking plan to start with....there is nothing better than bank percentage

[Chrome Prince]

On 2003-11-01 03:41, crash wrote:
Chrome,
I'll have a go at a reply.

What you were saying sounds correct on paper but you cant work out things like profit = 500% but risk was 600% [?]. The method is known as "Special pleading"[create a false "fact" and then base your argument on it]. The only fact is the 500% profit, not the 600% [or whatever] risk.

Risk [odds if you like] is a subjective thing in horse racing as in everything and can't be measured with maths [the goal of a system creating a golden egg], If so there would be a maths formula to work out precise odds of a horse winning which as you know, can't be done. Your 600% [or whatever] risk might have in fact been .01% or 1000% depending on the subjective measure [point of view or a collection of subjective measures].

Such things as tossing a penny can be worked out as a 50% chance of head or tails being equaly thrown in eventual totality [pure maths] but not where you are going to be score wise even after a million future throws. You could be rich or you could have lost a fortune and your shirt at any future point.


Hi crash,

I'm interested as to why you think that profit can be measured but risk cannot.
As you outlined one cannot be 100% accurate as to a horse's actual chances, BUT if you have for example 1000 bets and 50% of them win and your average dividend is $2.20, it really doesn't matter what odds an individual horse should be.
You still end up that you have a 50% chance overall so you are making 20% profit.

Of course there will be horses you consider have a 50% chance but have less, and others which have an 80% chance but you rated only a 50% chance.

Looking at it as a group of bets rather than the individual.

I calculate risk as the maximum drawdown as a percentage of the starting bank.

EG
Bank = $1,000
Maximum Drawdown $48.50
Risk = 4.85%

This is the risk of going bust on this particular series, you can shuffle the results various ways to see worse case scenarios etc.

This is also the reason that I take a series of results and shuffle lots of times and record the various patterns. I think I mentioned earlier, that you could be lucky and win straight away and never touch your starting bank too much, but at a different point you'd half lost half.

This is why I measure maximum drawdown from the highest point of the bank to the next lowest and apply that figure to the starting bank.

Others calculate it differently, but kid themseves that they had 0% risk, which is inconceivable.

You make some good points crash, thanks for your reply.

<font size=-1>[ This Message was edited by: Chrome Prince on 2003-11-01 11:46 ]</font>

[crash]

Chrome,

Your "Bank" is a present fact.
Your "maximum drawdown" is a past result.
Your "risk" is also a past result.

Presenting them all as future fact is "special pleading" [1 present fact + 2 past results = 3 future facts]. Your measurable risk then is based on assumption which is not usefuly measurable but could be used as a guide for future prediction [only].

If your maximum drawdown is exceeded at some future time, you must create a new maximum drawdown and risk % as new "facts". Meaning your earlier MD was not a maximum at all.

If however I am incorrect and your MD wont in the future be exceeded [is a known and measurable fact] then you are correct and risk can be measured. If that is so then could you please tell me the maths formula you used to mesure your MD [that was then used to measure risk %]. No maths formula, no facts.

It's all a bit like plotting the path of hurricanes based on their previous paths I'm afraid. Cannot be accurately done. A general guide sure, but reliable never [not even after examining millions of previous ones].

If you can measure MD or risk with maths [I am waiting on the formula not the argument], we are both wrong about not being able to measure exact odds using maths, but somehow I don't think so. Do you ?

Cheers.

Cheers.



<font size=-1>[ This Message was edited by: crash on 2003-11-01 23:57 ]</font>

[Chrome Prince]

Hi crash,

I agree with what you say.

What I am getting at though is the "best" way of measuring or presenting things.

Nobody can predict accurately the future, but we can make a pretty good guess. How accurate that guess is depends on the research done I believe, otherwise may as well stick to level stakes or such.

In answer to your question...

Maximum Drawdown = (Bank Highest Point) - (Bank Subsequent Lowest Point)

Risk = (Maximum Drawdown / Starting Bank) x 100/1

I hope this was what you were after.

What I do though is randomise the results many times and run simulations as mentioned earlier and calculate various outcomes for each scenario - it's a better guide.

All of the above is a guide, as you say there are no guarantees, I'm just looking at the best way of making a better prediction.

[crash]

Ahhhh, right on Chrome.
Of course I always agreed with you, but bugger [oops a typo] me, your poser was the only one around so I indulged in a bit of symantics to relieve the boredom of this endless Gippsland winter and crappy [another typo] windy weather. Lovely formula by the way [have a cigar].

I stick to % level stakes because my bets go up and down depending on the size of percieved overlay. Big overlay bigger bet [and boy, did that come home yesterday. 3 wins on 3 group 1 and 2s from 5 bets and the ever fearless Handbrake picked up on Timbourina in the Wakefield when I was on a looser].

I know I could still apply my betting method to progression but I'm too lazy to bother with it. As for risk management it's a personal thing. Scary for some would be boring for others. Easiest way of measureing it is to check your pulse rate [or your Bank managers].

Cheers and thanks for the discussion.



<font size=-1>[ This Message was edited by: crash on 2003-11-02 07:34 ]</font>

[Chrome Prince]

As for risk management it's a personal thing. Scary for some would be boring for others. Easiest way of measureing it is to check your pulse rate [or your Bank managers].


Not as far fetched as some might think, definitely a good indicator.

Let BP = Blood Pressure.

Risk = (BP x bet size) X (Grocery bill x How long it takes you to tell the wife).

:lol: