BTT Guest Post - Trading Emotions At Euro 2016
The first guest post on Steemit for The Zen Trader, looking ahead to this weekend and the start of Euro 2016 and how you can profit from an emotional market
Hello this is my first guest post on Steemit, for my site Betfair Trading Tips, where I am known as The Zen Trader
If you have ever been to Betfair Trading Tips then you will know that I like to look at the cognitive effects on the brain when trading sports. There I often talk about how to recognise when your brain is going into destructive thought patterns, that can ultimately have a negative effect on your profits.
The Euro 2016 Soccer Championships is starting this Friday the 10th of June, the hosts France will take on Romania in the Stade de France, 10pm Central European Time (CET).
Tournaments can be very emotional for all those involved, fans and players alike go through a myriad of emotions as their teams fight for supremacy. Sometimes it is the turn of the underdog to have his day, at other times we see the same players, acting out in their familiar roles of triumph.
The Betfair peer-to-peer network is not immune from the extra emotional charge brought by an international football competition.
What does all this mean for the Betfair trader; and how can you use it to make money?
Let's take a look at some common cognitive biases that effect you when trading and how you can take advantage of this.
Survivorship Bias
Otherwise known as Survival Bias, this is defined as; the logical error of concentrating on the people or things that "survived" some process and inadvertently overlooking those that did not because of their lack of visibility.
To put in plain English, survivorship bias is when you look at a surviving statistic and assume it tells the whole story.
A classic example of survivorship bias happened during World War II, when the American Center for Naval Analyses had conducted a study of the damage done to US aircraft that had returned from missions, and had recommended that armour be added to the areas that showed the most damage.
A Hungarian born mathematician Abraham Wald was brought in to work out why they were still losing so many bombers. Wald realised that the aircraft returning were the ones that were getting hit and still being OK, the ones that didn't make it back, well they never got to see where they were hit!
So Wald instructed them to focus their reinforcments on the parts of the planes that were damage free, because they obviously were crucial, seeing as no returning aircraft had ever been hit in those areas. Voila! More successful bombing runs, less aircraft lost.
Using Survivorship Bias To Your Advantage: Where do we see this failure in logical thought happen on Betfair, during major sporting tournaments?
We see it everywhere, but particularly in opening matches.
The start of tournaments is traditionally tight; even in some so-called mismatches, the first game is cagey, nobody wants to lose their first game, in a 3 match group stage. This fear of losing, often leads to a draw or a game won by a late goal.
So where does survivorship bias come into it?
It comes from the Betfair market heavily investing in the favourite to win; in Friday's case, France are 1.33 (3/10) to win the game and the draw is 5.5 (9/2).
Romania are long odds, underdogs to win the game and you have to say that all these odds are displaying survivorship bias. France have been great in their warm-up friendlies and are the hosts. They also have pedigree, having won the tournament in recent times.
However the surviving stats of their wins, status and home advantage, is missing the fact that these games are tight and the recent friendlies they've played, with respect to Cameroon and Scotland have not been against quality opponents.
Romania will play like they have in their last three opening tournament games, extremely defensively; they have drawn those three games. France also have drawn two out of their last three opening tournament games, one of them a 0-0 with Romania.
So how do you take advantage of this?
If the game plays out as I've described it, then the traders who are heavily invested in France will start to panic the further the game goes on without a goal. This will manifest itself in two ways; firstly in the draw market, the odds will fall by 50-60% by halftime. So backing the draw at the beginning, will leave plenty of scope to either partly or completely cash out. In the example below, a £50 back bet, is laid off later for £125, to produce a £75 all round profit.
The second place the panic will manifest itself is in the correct score market, the 0-0 and 0-1 prices will come tumbling down, as panicked traders try and recoup, perceived losses.
Betfair Trading Tip: Back the draw, for a mid to long-term strategy, looking to back out between 35 and 65 minutes. Back 0-0 and 0-1 for a good short to mid-term approach, looking to back out of the 0-0 between 20 and 45 mins. The 0-1 will depend on the scoreline and state of play, but that should become tradeable in the late first half to early second half.
Verdict: Draw/Narrow French Win
Cognitive Dissonance
The term cognitive dissonance relates to another short-circuited type thinking, it is the state of feeling discomfort caused by having conflicting, behaviours, attitudes, or beliefs. This causes the affected brain to alter behaviour because of it.
I have written at length about how cognitive dissonance affects the mind, in relation to sports trading, in tournaments the phenomena is magnified to the point of madness.
In 2004, Greece caught everyone unaware and won the European Championships. As the tournament progressed, everybody talked about what a wonderful surprise it was to have an underdog do so well. Completely ignoring the fact that Greece had come through a group including Spain and had beaten the group winners, Portugal, 2-1. By the time the Greeks got to the semi-finals, they where still a whopping 10-1 to win the tournament.
How do you take advantage of cognitive dissonance in a tournament?
It is quite simple, if after the first game or two you spot that a favourite is playing badly or an underdog is playing well. You either lay the favourite or back the underdog, cognitive dissonance will cause the market to have too much faith in the favourite, just because "they are who they are" and too little in the underdog.
We saw this with Chelsea in the English Premier League, in the recently ended season. Time and time again they were the favourites on Betfair, even though it was clear they were playing awfully and hated their manager. It almost feels unfair to take the money of someone willing to offer favourite prices, for a poorly performing team; well it doesn't, but it should do!
Betfair Trading Tip: It is worth laying a favourite or two in the first round for small money, but wait until the second and third games to really see if things are going badly for a big team. Back any underdog you see playing well in the first game, even if they don't manage to win. The trading opportunities come when the favourite concedes or the underdog scores.
If you would like to find out more about how to trade sports on Betfair, subscribe to Betfair Trading Tips today.
Good luck and happy trading.
The Zen Trader - aka Cryptogee