Gambling is a way to make money. You need to place bets with a greater chance of success than your odds. Good luck and bad luck will eventually balance out, and your fate will depend on the sum of these probabilities. If you have an advantage in placing bets, you will win more money. For a simple reason, I prefer to use the word “should” instead of “will”. You can have an edge in every bet, but still lose money. Sounds implausible? Let me explain.
Let’s assume your Betting bank is EUR1,000. Your bookmaker will offer you 2.05 heads on a coin toss. This offer is valid for 50,000 coin flips. However, you can only use your original bank and you are out of luck if it’s lost. What is the best amount to bet? The edge isn’t huge but it is very real. With proper Banking Management you can make huge profits after the 50,000 flips.
I set up a Monte Carlo spreadsheet to investigate. Excel comes with a random number generator that I use to simulate tossing a coin. Enter the probability of live casino success at 50% and the odds of me getting 2.05, and it will give me a 1 for heads or 0 for tails. I also enter EUR1000 into my betting bank and select the percentage I want to stake on each bet.
I first enter to return 10% from my betting bank for each bet. My bank is EUR1000, and my odds are 2.05. This would result in a stake of EUR48.78 for the first bet. (I am staking to return EUR100, which is 10% of what I have). Even though my stake is only 4.87%, it’s still a reasonable amount considering that I have a 50% chance to succeed. After each 1000 bet, I graph the results. After 37,000 flips, my bank grew to EUR209 995. It would seem that betting to earn 10% of your bank’s profits is the best way to go. After 48,000 bets, my bank experienced a huge down swing and fell to EUR46. After the 50,000 coin tosses, it recovered to EUR290.
To produce another set, I hit refresh. My betting bank reached EUR5,200 after 2,000 wagers. However, it plummeted to EUR1.18 after 50,000 stakes. The overall strike rate was 0.1% below the 50% expected, which should guarantee a profit. To break even with 2.05 odds, I need a 48.78% strikerate with level stakes. It was a lot more complicated than I expected. I lost less than half of my initial bank after placing 50,000 bets. The reason I experienced huge fluctuations in my bank was because I was placing too high a percentage for each bet to ensure that the inevitable bad run would decimate my bank. This was regardless of the fact that I had an overall edge on the betting. The first 37,000 bets went well, which would have led most people to believe that their system was safe. It’s difficult to believe that a down swing could cause such good fortune, especially when you have such a large sample. This illustrates that if you have poor bankroll management, a profitable angle won’t be enough.
Kelly Staking, which is what I discuss in my article on staking plans would recommend staking 2.38% (or 2.38*2.05) of my bank. This would be equivalent to staking for 4.879% (2.38*2.05). This simulation was run 10 times. The worst result was a bank worth EUR160,000. This is clearly a better approach, but it’s more difficult in real life. Kelly Staking works best if you know the odds of winning each bet. It is usually impossible to do this, since in most cases, you can only estimate the odds. I think it is human nature to underestimate our advantage in most things. If you don’t have the necessary information to make an informed decision, you may be as bad as the market.
If a horse’s odds of winning are 2.0 at Betfair, you would rate it a 1.8 shot. It means that you believe it has a 55.55% chance to win, while the market believes it has a 50% chance. If you are very good, the real price will be closer to 1.9 or 52.63%. My daily betting shows me that the maximum I can hope for in terms of true probability is the middle point of my estimate and that of the market. This is an important point to remember when you are creating your staking strategy.
Instead of using the market’s midpoint, an analysis of past results will reveal your true edge on certain types of bets. This would be a useful figure, provided the sample size is adequate. Remember that past success does not guarantee future success, so this approach should be used with caution.
Kelly staking is used in the above example. If you assume that your probability of winning is correct, then your stake would return 22.2%. If you are right and your bet wins 55.55%, your profits will go off of the scale. However, if you get only the 52.63% strike rate, your bank will go bust every single time. This happens despite the fact that you clearly have an advantage on the market. The problem is that you underestimated it.
These are just a few examples of situations where an edge is not enough for you to make a profit. Your bank will fluctuate wild if your stakes are too high, and you will lose all of your hard work and profits. While you shouldn’t be too conservative, it is important to understand that gambling isn’t for everyone. It is important to calculate your risks and understand that long-term success strategies will experience periods of small to medium loss. These bad periods should not be a problem for your betting bank.
I created a Monte Carlo simulation in Excel to show you the types of losing runs that you can expect. If you have a 50% chance, your strike rate will be 40%. This is 3% for 100 bets. This means that if your long-term strike rate is 50%, there is a 3% chance you will win 40 winners in the next 100 bets.
10% strike rate, which is 9/1 true odds, will result in only 1 winner from 100 bets approximately 0.05% of time. Although this may seem unusual, it is actually quite common. In a period of 5000 horse bets, there will be only one winner out of 100. This makes the odds of winning 9/1 true odds about horses. You need to make sure your bank is able to withstand this kind of thing when it does happen, which it often will. Your Betting Discipline must be such that you don’t lose your cool and do not make stupid mistakes.
The probability of success and the size of your margin are important factors when deciding how much you want to stake. If you underestimate your edge, it can make a profitable system a losing one. Kelly Staking is a good starting point. However, it’s important to keep your ego away from the equation when estimating your edge. When estimating your edge, if the market price is 9.0 but you believe it should be 7.0 then maybe you should use 8.0. No matter how accurate your estimate of a probability is, it is only an opinion. The market price is the collective opinion of thousands.