Tuesday, June 28, 2011

Sport Markets Are Like A River

Sports markets are like a river. Think of the image that a river conjures up... It's babbling, full of life, volatile. In some areas, it appears to move really fast, and even may have cascading waterfalls. Sometimes a river may seem quiet, but may have a strong undercurrent that can drag you in if you aren't careful. Sports markets remind me of a river, barrelling forward at enormous speed. Just like a river, sport markets babble along, full of life with lots of twist and turns. Just like there are many streams of water in a river, there are lots of trades going on at the same time in the sports markets, in parallel and entwined. At times, it moves at a million miles a second. Some other times, it's seemingly dormant, only to wake up minutes later. They say that you can't enter the same river twice, because it won't be the same river. Sports markets are the same. The fast-moving sports markets don't slow down for anyone, and if you can't keep up, you'll miss it.

Therefore let's quickly deconstruct our sports market river:

Ignore the noise: One would say that sports markets are very noisy, and one would be right in saying that. The true key to results in your sports market trading efforts will be based on your ability to filter out the noise and focus in on the signals. Unfortunately, as sports markets hit the mainstream, the signal to noise ratio will only deteriorate. Don't get me wrong this is not a bad thing because there will be more liquidity in the market, however if you are trying to become a successful trader, you can't simply trade every signal. You need to pick and choose the most meaningful signals to focus on.

Watch for signals: The only way to make sense of the sports market noise, is to "swim in the sports market river" and catch on to meaningful signals, as you would to a life raft.

Here are some types of things you should watch for:
  • Recent trades when deciding if you want to trade in the sports markets, always examine the current market state - what is the ratio of traders who are Backing vs. Laying? Is it behaving as it should? What strategy/strategies am I going to deploy?
  • Market Influence is very tough to measure, however there are various methods we can use such as Betfair charts and looking at the long term trend of a particular sports market. Or use more advanced charting found in good betting exchange software like ISI Trader to look for Support & Resistant levels, real-time action, signals and trends. Using fundamental and technical analysis will help you separate the wheat from the chaff.
  • Follower / followee sometimes trends at their trading ranges are dead giveaways for herd mentality behaviours. Many traders follow the trend at the wrong time, creating a mass following which then leads to a collapse and reversal in the sports market. A significantly higher number of market movements you follow vs. those which follow you can be a possible red flag.
Respond quickly & execute: Depending on the situation, various speeds of response are acceptable - however, the two speeds that exist in sports markets are "real-time" and "fast". Typically, if you don't process the data coming from the sports markets quick enough the opportunity will have gone. If you're scalping, that's especially true, as it feeds on real-time interaction. Once you have identified trades you want to execute, make sure you have a plan. Know your entry and exit points and stick to them.

For more information on Sports Trading visit www.interactivesportsinvestor.com

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