Trading The Percentages And How To Understand Them
Last week, we looked at the Weight Of Money (known as WOM) and how understanding it, can help us to better understand our trades.
If you missed it, you can view that article – HERE
Over the next two articles, we'll be looking at how the percentages work in the odds we're looking at, how this works with WOM and the advantages of having this knowledge.
Let's take a look at a football market –
We take the best prices available (which are underlined and highlighted in black) and work out what the percentages are.
Man City @ 27/50
Draw @ 18/5
Man Utd @ 6/1
To convert these prices into percentages, we need to divide the left number by the right and add 1.
Man City, therefore, would be 27 divided by 50 = 0.54 plus 1 = 1.54
We do that for the other two outcomes –
Draw = 4.6
Man Utd = 7
We now divide these decimal odds into 100. That is because there is a 100% per cent chance that one of the three outcomes will happen.
We now get the following percentages –
Man City = 64.94%
Draw = 21.74%
Man Utd = 14.29%
We add these three figures together to get 100.97%. This figure shows us that the bookie has an edge over the market of just under 1%.
It's important to understand these figures as they come into play when we start to trade seriously.
For example, looking at Man City with a probability of 64.94% of winning the match, should they score a goal in the first half, their probability will go up to around 80% (1.25 decimal odds or 1/4 in fractional odds). This would be the perfect opportunity to then trade out our position, had we backed Man City, for a guaranteed profit. More on that later…
Let's now take a look at the Exchange market –
The exchanges will show all of their odds in decimal so we don't need to convert them. However, we still need to work out the probabilities and we use the lay odds (the pink boxes) to do this.
Man Utd = 13.88%
Man City = 64.93%
Draw = 20.40%
Total = 99.21%
You'll notice that the total percentage is under 100%. This is because Betfair and other exchanges don't have an overround like the bookies (although we do have to pay a 5% commission rate).
There were two angles to look at with this game. I'm not going to go into the details of each angle but to put it simply, they were –
Back Man City and wait for a goal (predicting that they would score first) and then lay them off for a guaranteed profit.
Lay the draw after the 1st half if still 0 – 0 and then wait for a goal to then back the draw for a guaranteed profit.
As it happened, both predictions worked and Man City scored in the 54th minute. The lay odds would have been a lot shorter to lay come the second half and would have obviously drifted back out, for a profitable trade after the first goal.
Next week, I'll be looking at how we could have got bigger odds about Man City, by using a little trading trick, how we tie in our knowledge of WOM with the percentages and concluding this particular element of trading.