Position Sizing Study

[badcompany]

Pretty interesting paper that can just as easily be applied to horse betting.

A few of the conclusions reached are that traders tend to overestimate their probabilities of being right and that those who aren't trained in money management and investment psychology tend to overtrade/overbet their bankroll.

Some of the references at the end are also interesting:

http://www.turtletrader.com/position_sizing.pdf

[lamboguy]

this is probably the best post i have ever read on this board.

i only hope that people spend the time and read it, and the professional internet lurkers out there that always gang up on me to explain all my mistakes stay away from my post here.

[HUSKER55]

THANKS FOR THE POST. i THOUGHT IT WAS INTERESTING. :ThmbUp:

[Fastracehorse]

Pretty interesting paper that can just as easily be applied to horse betting.

A few of the conclusions reached are that traders tend to overestimate their probabilities of being right and that those who aren't trained in money management and investment psychology tend to overtrade/overbet their bankroll.

Some of the references at the end are also interesting:

http://www.turtletrader.com/position_sizing.pdf

interesting that the paper takes the position that most investors ( punters included )
overestimate their relative skill set

fffastt

[thaskalos]

interesting that the paper takes the position that most investors ( punters included )
overestimate their relative skill set

fffastt
Is that surprising?

[therussmeister]

Everybody overestimates their relative skill set, not just traders and gamblers.

http://en.wikipedia.org/wiki/Illusory_superiority

[sammy the sage]

Everybody overestimates their relative skill set, not just traders and gamblers.

http://en.wikipedia.org/wiki/Illusory_superiority

You're NOT a man if you don't :D

[1st time lasix]

i have worked in a money management capacity for thirty years....primarily equities, options, and asset allocation I also appreciate the nuances of handicapping multi race exotics. The most successful speculators i have observed have learned to take postion well within their means and to "take their medicine" when they are losing. The take small hits but always live to play another day.

[windoor]

Survive the losing streak.

One of the four requirements needed to be profitable long term.


Regards,

Windoor

[thaskalos]

Few horseplayers approach this game with the seriousness that successful traders approach the markets.

The vast majority of horseplayers don't even bother setting up a bankroll...preferring instead to play "out of pocket". And even when they DO set up a bankroll, it is either too big -- and includes money that they really cannot afford to lose -- or it's too small, and they soon become discouraged because of their unappetizing returns.

Whereas the trader sets up a pretty decent bankroll, and is thrilled to get a 30% annual return on his invested funds...the horseplayer operates under the delusion that he can parlay a tiny bankroll into many thousands...because, after all, our game offers the opportunity of turning a matchstick into a lumber yard.

Rare is the horseplayer who sets up a serious (but affordable) bankroll...and approaches this game like a serious investment -- with only realistic, long-term returns in mind.

It's as if the horseplayer has become bored or disenchanted with the REAL world...and has invented ANOTHER one to spend his time and money on.

A world that doesn't really exist...

[badcompany]

i have worked in a money management capacity for thirty years....primarily equities, options, and asset allocation I also appreciate the nuances of handicapping multi race exotics. The most successful speculators i have observed have learned to take postion well within their means and to "take their medicine" when they are losing. The take small hits but always live to play another day.

One of the points the study makes is that people become less risk averse when they start losing and conversely moreso when they have a profit.

IMO, they both are a result of our natural pain aversion. When you're winning, the pain is in giving it back; when you're losing, it's in realizing the loss.

Being in the biz myself, and trading for many years, I still have to fight the urge to "hang in there" when a trade goes south.

[raybo]

This quote pretty much says it all:

There was not one particular method of analyzing the markets, nor
one sole buy-sell strategy that could account for how these traders
could be so prosperous. However, one common trait in their
approach towards the markets was their ability to manage risk.
Earlier during their careers some of them had, completely or
almost, lost their trading capital. The one thing separating these
future “market wizards” from other losers was their ability to learn
from their mistakes by analyzing the risks they had taken, to
develop and launch strategies for never letting themselves get
stuck in the loss-trap again.

My signature line is not just some "witty" comment, it is something I believe. The "market" and horse race wagering are astonishingly similar, if one's ultimate goal is long term profit.

[raybo]

Rare is the horseplayer who sets up a serious (but affordable) bankroll...and approaches this game like a serious investment -- with only realistic, long-term returns in mind.

It's as if the horseplayer has become bored or disenchanted with the REAL world...and has invented ANOTHER one to spend his time and money on.

A world that doesn't really exist...

Amen!!

[Robert Goren]

The great thing about the stock market related exchanges is that you are not paying a 20% commission per trade. If they charged that, I think I can safely say that there would be no stock market related exchanges.

[Robert Goren]

A long term investment in handicapping lasts for only 6 races even if you are lucky.:lol:

[raybo]

Another "pearl":

When the trader is capable of computing the expected value, then he/she is in the position to estimate when the odds are in his/her favor.

Appears to mirror my "minimum expected payout" in superfecta wagering.

[raybo]

The great thing about the stock market related exchanges is that you are not paying a 20% commission per trade. If they charged that, I think I can safely say that there would be no stock market related exchanges.

And thus, the importance of seeking "value" in your selections vs seeking high hit rate. The two are in direct competition with one another.

And, also, the importance of seeking the most efficient wagering vehicle.

[badcompany]

The great thing about the stock market related exchanges is that you are not paying a 20% commission per trade. If they charged that, I think I can safely say that there would be no stock market related exchanges.

Not that the NYSE didn't try to keep commissions high by fighting, tooth and nail, the electronic trading that has brought commission rates down to such low levels. The fact that the exchange floor still exists and the biznets still cover the floor as though it's still relevant is evidence of my point.

It just shows that even a powerful organization like the NYSE can stall progress but, in the end, can't stop it.

[ALL CIRCUITS GO]

when I take a position in the market and it goes south, I can get out and save some money....

I wish there was a way I could cancel my wager when I see on the backstretch that my horse has gone south.. maybe give me back half my wager if I can hit cancel before half the race is over?? that would be nice..

lol
:)

[badcompany]

when I take a position in the market and it goes south, I can get out and save some money....

I wish there was a way I could cancel my wager when I see on the backstretch that my horse has gone south.. maybe give me back half my wager if I can hit cancel before half the race is over?? that would be nice..

lol
:)

Of course, there's another side to that coin.

In horseracing, the decision of when the race is over is made for you. In the market, YOU have to make it.

[CincyHorseplayer]

Thanks for sharing this.I like the ideas in the "Framing Effect" and "Disposition Effect",it makes you confront your own psychological realities.

The optimal position sizes were interesting,it's practically parallel to most suggested horse wagering %.

[shouldacoulda]

...the horseplayer operates under the delusion that he can parlay a tiny bankroll into many thousands...because, after all, our game offers the opportunity of turning a matchstick into a lumber yard.

Rare is the horseplayer who sets up a serious (but affordable) bankroll...and approaches this game like a serious investment -- with only realistic, long-term returns in mind.

The reality is usually turning a lumber yard into a few toothpicks. Handicapping is one aspect but money management is always key. It's like putting is to golf.

I think it was Mike Pizzola that said you should never wager more than 5% of your bankroll at one time. I still struggle with money management.

[thaskalos]

The reality is usually turning a lumber yard into a few toothpicks. Handicapping is one aspect but money management is always key. It's like putting is to golf.

I think it was Mike Pizzola that said you should never wager more than 5% of your bankroll at one time. I still struggle with money management.

IMO, 5% is WAY too aggressive...and overplaying a bankroll is the worst mistake a horseplayer can make.

The only way the horseplayer can maintain his equilibrium in the pressure-packed environment in which he plies his trade, is if he keeps his individual bet size down to a level where he is pretty much disinterested in any one race's outcome.

1% is more like it...

[Robert Fischer]

IMO, 5% is WAY too aggressive...and overplaying a bankroll is the worst mistake a horseplayer can make.

The only way the horseplayer can maintain his equilibrium in the pressure-packed environment in which he plies his trade, is if he keeps his individual bet size down to a level where he is pretty much disinterested in any one race's outcome.

1% is more like it...

<----- 5%-15%

[VastinMT]

IMO, 5% is WAY too aggressive...and overplaying a bankroll is the worst mistake a horseplayer can make.

The only way the horseplayer can maintain his equilibrium in the pressure-packed environment in which he plies his trade, is if he keeps his individual bet size down to a level where he is pretty much disinterested in any one race's outcome.

1% is more like it...

2% to 5%

[thaskalos]

2% to 5%

5% is 1/20th of your bankroll.

Under what circumstances would you be willing to bet that much...and why?

[badcompany]

5% is 1/20th of your bankroll.

Under what circumstances would you be willing to bet that much...and why?

IMO, there's no "One size fits all" bet size. Depending on the type of bet you make and the number of bets per day, even 1% a race can be way too much.

Let's say you bet strictly tris or p3s and make 5 bets per day. A cold streak could eat up 25% of your bankroll in short order.

In horseracing and the stock market, generally, the lower the hit rate, and the greater the number of simulaneous trades/bets made, the smaller the bet as a % of bankroll.

[Johnny V]

IMO, 5% is WAY too aggressive...and overplaying a bankroll is the worst mistake a horseplayer can make.

The only way the horseplayer can maintain his equilibrium in the pressure-packed environment in which he plies his trade, is if he keeps his individual bet size down to a level where he is pretty much disinterested in any one race's outcome.

1% is more like it...
I agree with this because to me protection/preservation of bankroll is paramount. If the wagering percentage is 5% or more you are at risk of erosion or loss of it. At 1% I think the chances of that happening are nil. The downside is that by keeping your bets too low you are also risking some profit loss. I think 1% −2% is a good range for most win betting situations.

[CincyHorseplayer]

1-3%.I think there should be a decent dispaity in value bets and prime bets.2% falling in the range of either inflated odds on a value bet or a prime bet horse with a question mark or two.

[thaskalos]

IMO, there's no "One size fits all" bet size. Depending on the type of bet you make and the number of bets per day, even 1% a race can be way too much.

Let's say you bet strictly tris or p3s and make 5 bets per day. A cold streak could eat up 25% of your bankroll in short order.

In horseracing and the stock market, generally, the lower the hit rate, and the greater the number of simulaneous trades/bets made, the smaller the bet as a % of bankroll.

The size of a bankroll definitely depends on the types of wagers a player makes. When I suggested using 1% of the bankroll as the betting unit, I was talking about betting one horse to win.

The more "exotic" the bet...the more demand it places on a bankroll.

It also has to do with how SERIOUS the players is. Most players bet small amounts...and don't concern themselves with proper bankroll management, because they are not afraid of busting out.

The larger-scale bettor, on the other hand, puts a much bigger bankroll at risk, and he better learn how to properly protect it...because large bankrolls cannot be easily replaced.

[Dark Horse]

5% is 1/20th of your bankroll.

Under what circumstances would you be willing to bet that much...and why?


See Kelly criterion. Of course, this depends on an ability to precisely determine one's winning probability.

[thaskalos]

See Kelly criterion. Of course, this depends on an ability to precisely determine one's winning probability.

I wish I could do that...:)

[Robert Fischer]

5% is 1/20th of your bankroll.

Under what circumstances would you be willing to bet that much...and why?
thaskalos

Looked at my wager size algorithm

The 5%-15% i claimed is a bit high(guilty of position sizing bias ?):blush:

Actually i realized that the entire bankroll was being used = so that in a wost case scenario i am busted.

Looking at using "half bankroll" in the algorithm, cutting the Percent of Bankroll allocated in half, effectively eliminating the risk of ruin.

will post some wager type examples with percent of bankroll and explanations soon.

[Xman2]

I think Michael Pizzolla's advice is .5% of bankroll to be wagered at any one time.

Xman2

[Robert Fischer]

position size

all wagers figured for 10% profit

pays $6 'win' hit%36.7% %bank2.5%
pays $3.20 'plc' hit%68.8% %bank6.25%
pays $2.60 'shw' hit%84.6% %bank10%

[badcompany]

position size

all wagers figured for 10% profit

pays $6 'win' hit%36.7% %bank2.5%
pays $3.20 'plc' hit%68.8% %bank6.25%
pays $2.60 'shw' hit%84.6% %bank10%

How do you know you're gonna get these prices, especially the place and show?

[Robert Fischer]

How do you know you're gonna get these prices, especially the place and show?

Have to check the pool info and then make a low-estimate.

[acorn54]

i think it is alot easier to just get a job

[thaskalos]

i think it is alot easier to just get a job

I would...but my whole body cries out against the inhumanity of regular employment.

[raybo]

It definitely is easier to just get a job, but then, it's just a job. Horse racing, and all that it entails, can be a life filling passion.

[badcompany]

Have to check the pool info and then make a low-estimate.

In other words, an educated guess.

I have issues with math based systems when you don't know if the data you're using is correct.

I think Michael Pizzolla's advice is .5% of bankroll to be wagered at any one time.

Xman2

Yeah, this is pretty much the way I go. I start at .5% and max out at ~1.5%

Any more than that and the drawdowns become too painful.

[raybo]

I use .8% of bankroll as a minimum and 1.4% as a maximum.

Rule of thumb, for me, is if the average wager is $5 then the bankroll must be at least $500.

[VastinMT]

5% is 1/20th of your bankroll.

Under what circumstances would you be willing to bet that much...and why?

It's a standard bet for those that qualify at maximum confidence. Not too many on any given day. Minimum (but playable) confidence goes in at 2%.

I calculate my roll for each day, adjust the percentage.