Monday, June 27, 2011

A Game of Two Halves

No we are not talking about Football, but Horse Racing Pre-Race the last 10 minutes. It's clear by watching the movement & behaviours of multiple horse racing markets over the last 8 years. The market in the last 10 mins seems to have two very distinct phases each with its own characteristics.

So what does this mean for the sports trader? In essence this means the sports trader has to approach the two halves in totally different ways and consider alternative strategies as well as trading styles because of the differing market dynamics. In other words it is like trading two different Horses races and as such the mindset of the sports trader should view the two phases as two totally different markets.

For instance during the 6 - 10 mins prior to the race starting, the market may be moving in a steady uniformed upwards direction with the sports trader adopting strategies to suit. These could include strategies such as scalping the market, dipping in and out for small tick gains i.e. opening the trades with Lay orders and closing quickly 1 tick later. Alternatively the sports trader could be taking longer positions, swing trading the up trend with pre-determined exit points several ticks from his/her original entry points.

Then all of a sudden at some stage the market decides to change. More often than not this change occurs around the final 5 minute mark, when the market suddenly decides that it wants to behave differently and the sports traders mindest has to change to cope with the new and often different behaviours exhibited by the market. Or PAY THE PRICE!!!!

Is this something that has happened to you?

So why does this happen the simple answer is because you have two different sets of traders or gamblers participating in the market at various stages. In the first part the 6 -10 mins before the start of the race you have the specualtive traders and gamblers looking for what they perceive to be value etc... Or, and this is the KEY traders or gamblers who are not still involved in the previous race. We do not mean traders or gamblers who have traded or gambled in the previous race but ones who are still trading maybe inplay or gamblers who are waiting to see who wins the race before deciding on their next move/bet. Remember some gamblers will be running systems where they need to know what happened in the previous race before they can make a decision on what to do in the next race.

As a result of these different groups you have two very distinct phases (please note there are also other mini phases as well) the 6-10 minute phase and the 0-5 minute phase. In the last phase the 0 - 5 mins as the traders & gamblers finish on the last race and enter the next market, they often change the dynamics of that market, which in turn changes the behaviour. For example markets that where nicely drifting, are now reversing and steaming. Markets that were once stable and predictable become erratic and unstable. There is often a period when the market is simply moving sideways as the battle between the two groups of participants plays out.

In addition there are also other factors that effect the final 5 mins before the off. These are traders with large trading accounts who want to force the market in one direction or the other so they can make a profit before the market closes. Bookies Laying off their liabilities or sports traders exiting positions either manually or via triggered stoplosses and last but not least the last minute gamblers placing their bets before its to late.

Therefore it is wise for the sports trader to view the final 10 minutes of pre-race Horse market as a game of two halves. This means being prepared to change you strategy as the market evolves. Maybe having one strategy in the first phase exiting at the 6 minute mark and waiting for the market to settle before deciding how to trade the next phase.

Overtime as you progress on your sports trading journey, you will notice more and more of these re-occurring patterns and as you do you will be able to evolve your strategies and trading plans to suit. Noticing patterns that happen time and time again will enable you to find your niche or edge and ultimately improve your profitability.

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