Trading Strike Rates – Why We Need Them & How To Use Them
Last month, we looked at trading strike rates and how understanding them can benefit our betting.
What we are looking at here, in today's article is trading whereby we are looking at a fixed percentage price movement, e.g. from Price A to Price B, rather than the more commonly used ticks movement.
Why might this be important for us to know and understanding?
Well, in my humble opinion there are two ways to approach trading.
One is “pre and the event starting” and the other is when an event has gone “in-play”.
Pre-event trading will have different characteristics depending on the sport. For example, in horse racing, much of the market movement takes place in the key 10 minutes before the off and is influenced by a combination of bookmakers, punters, and on-course bookies.
Whereas in Football, this can usually happen about 60 minutes before kick-off, with the announcement of key team news.
In these instances, it makes sense to focus on tick price movements and is more typical of traditional trading and involves assessments of the weight of money and other factors and estimating which way a price is going to go.
So, what is the other way of tackling trading?
It is what I call event-based trading.
In horse racing, this could be a horse taking an early lead – E.g. something you might use in a Back To Lay or Dobbing approach.
In football, this is usually when a goal is scored but can also be influenced by bookings, red cards, and other in-play factors.
In this instance, we are not looking for a few ticks price movement in one direction or the other. We are, ideally, looking for bigger movements and capitalising on those.
Personally, I find my strategies for this type of trading generally focus on a percentage profit rather than a set number of ticks. It also usually means that we are willing to risk our full trade stake, rather than having a stop/loss applied.
From a mindset point of view, neither approach is all that different. When entering a trade you should always have a plan already and know your target exit point, whether that be 5 ticks or 5%.
It is the latter example that I would like to focus on today and why strike rates are key and, more importantly, how to work them out.
While researching this article, the really interesting thing I found, was how little this is actually talked about in trading circles. Yet I feel it is incredibly important and fundamental to so many trading angles.
- 1. Why do we need to know our strike rate?
In traditional betting, we know that if we back something at 4.00 (3/1), we know it has a 25% chance of winning based on the implied odds.
So, if all our bets were exactly the same and we got 4.00 on every bet, but our edge allowed us to win 30% of the time – we make money.
Now, if we want to trade to make the same percentage return across all our bets, we need to think a little harder on how we do this.
Let's say for every trade we enter, we are successful 80% of the time. Meaning we are able to trade out and secure our target profit.
Sounds great doesn't it, 80%, we must be making money then.
But are we?
- 2. Does our strike rate mean we will be profitable with our trades?
For starters, with an 80% strike rate, we know we are going to lose our full stake, 20% of the time.
For simple maths, let's use a total stake of £100. Based on one hundred events, we know we lose twenty times. So £100 x 20 = £2,000
So the other 80 trades need to cover the £2,000 plus any profit we are looking to generate.
Let say we want to make a 5% return overall. So, we need to return £2,100. Or £26.25 per trade on our 80 winning trades.
So, based on this, if we had an 80% strike rate and we were staking £100 per trade. We would need to be targeting a profit of 26.25% per trade.
Great, now we are getting somewhere.
The above assumes a simple use of numbers to prove our point. But real-world trading will not be like this.
The odds will be different on every opening trade and every closing trade.
The only consistent is that we want to make – X% profit or we lose our full stake.
So, how can we look at a set of past trading data or make a trading plan that will allow us to follow an approach, confident in the knowledge that if we can achieve or maintain a certain strike rate, we will make a profit?
*Rightly or wrongly* the way I have looked to do this in the past is looking at my trading data and obtaining the following information to work backward to what strike rate I need to maintain.
Average Odds (all backs and lays): 1.56
Average Back Odds: 1.88
Average Lay (using a hedge) Odds: 1.18
Average Hedge Price: 1.35
Bet £100 at 1.88 = Win £88 or lose £100
Lay £100 at 1.18 = Lose £28.68 or Win £159.32
Either outcome would leave us with a profit of £59.32 or 59.32% of our opening stake
To convert this back to easy maths, what we are, in effect doing, is backing an outcome at 1.59 to our £100 stake.
We need to divide the 1.59 into 100 to reach our strike rate. This equals 63% (rounded up).
So to break even, we would need a strike rate of 63% (62.893%)
Using our 100 event example –
63 times we will win £59.32 = £3,737.16
37 times we will lose our full stake of £100 = -£3,700
So, basically, we're break-even as we expected.
To make a profit from these trades, we either need to increase our target profit percentage (59.32%) or our strike rate (63%).
Strike rate is the one we can influence by improving our approach. If we simply tried to make more profit with each trade, we'd likely see the strike rate move correspondingly.
Let's say we've improved our approach and we are now achieving a 70% strike rate.
70 times we will win £59.32 = £4,152.40
30 times we will lose our full stake of £100 = -£3,000
We have now made £1,152.40 by moving our strike rate by 7%
Ok, so we can now see why the strike rate is so important when it comes to trading percentage profits.
How do we make this easy for us to know ahead of time?
To do this, we will need the following:
Opening Stake: £100
Target Profit Percentage: 50%
Target or Average Back Odds: 2.00
From this, we need to determine what our lay odds (to hedge) will need to be to deliver a 50% profit.
We need to take our back price of 2.00 and multiply this by our stake (£100) = £200
We then divide our lay odds into our potential profit from the back price.
In this case, that would be £200/1.33 = £150.38.
At the lay price, our liability would be £49.63.
Our profit from the back bet would be £100 minus £49.63, which would give us a profit of £50.37p (before commission).
If the trade was to lose, then we would make £100 from the back bet but lose £49.63p from the lay bet, therefore, our profit would again be £50.37p, and we're in the same position either way.
We now know, that to break even, we need to hedge our trades at 1.33 to secure a 50% profit margin, so we need a strike rate of 50% to break even and above 50% to make a profit.
Opening Stake: £100
Target Profit Percentage: 50%
Target or Average Back Odds: 3.00
Lay odds calculation = 2.00 = meaning we need a 33% strike rate to break even.
Does all of that make sense?
Please, let us know in the comments.
This article has been in the making for a few weeks now and we've been seriously debating all of the points, back and forth, for what seems like an age!
Next week, we'll be going into the calculations in more detail and looking at some “real life” examples of how these strike rates are arrived at.
Have a great weekend,
Jon, Eddie, and the Football Advisor Team