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Ex-professional gambler checking in. It's no secret that it's possible to figure out which horse is going to win a race with reasonable statistical confidence.

Ex-professional gambler checking in. It's no secret that it's possible to figure out which horse is going to win a race with reasonable statistical confidence. The trick - and always has been - is making sure you can make a profit from it. If a horse has a 30% chance of winning a race, and you're being offered odds as if it only has a 10% chance (i.e. 9/1), you have identified "value" or what Kelly Criterion would describe as "edge". You can mathematically in the long term make a profit, and Kelly can even tell you what %age of your bank to wager to optimise your expected returns: https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion Identifying the "true" odds of an outcome and then identifying what odds you're prepared to take (adding an over-round), is a key piece to what bookmakers do when creating what they call "the tissue" - the opening odds they offer that is then adjusted to manage liabilities in line with incoming weight of money (WoM) from bettors. Kelly was a colleague of Claude Shannon. His papers have stood up to the rigour of mathematical analysis and also make intuitive sense to those who spend enough time thinking about it. It has successfully been applied in casinos (Blackjack system pioneer Edward Thorpe is/was a fan), bookmakers, hedge funds (Thorpe again, but many other funds apply Kelly too), and everything in between. But here's the rub: you won't get to keep your edge for very long. Bookmakers, betting exchanges and parimutuel systems all adapt to deal with long-term winners. Your window of opportunity is limited. Already bookmakers have good systems for identifying true odds for English Premier League games and make a tidy sum on over-rounds (profit margins) as thin as 3% because they can eliminate value. That said, as any fan of Sabremetrics will tell you, statistical analysis of a sport you love can be very rewarding and I would not put anybody off this if they already love the horses (as I still do). Just tread carefully, and to make a long-term killing you're going to have to treat your setup like a hedge fund and always be moving around finding new edges. I'm @p7r on Twitter if anybody wants to talk about this - I could talk for hours and hours and hours... :-)

throa2213 9y ago
Did you gamble experience help you in real life (in case you work for some trading company)?
- PaulRobinson 9y ago
  I've talked to finance shops (I live in London, so there are plenty about), but they worry about my lack of formal mathematical training and of course they don't want to hire "gamblers". I've got some calls with a few people lined up that might mean I get to make the jump at some point in the next few months. I am enjoying it being a hobby right now, and I seem to be more comfortable calculating and assessing risk and pay-off than others which can be useful in an engineering team with an operations component. So it's helped, but it's not my job, no.
ilamont 9y ago
ex-professional? Why did you stop?
- PaulRobinson 9y ago
  I started after the dot.com crash in 2001/2002 when work was hard to find. It sounds like a dream job, but actually, it's not. You start to tire of a sport you loved, and each morning you wake up with a pile of cash that you want to make a few percent bigger by the end of the day. You're not adding anything to society, you have no colleagues, there's little to talk about with friends and family, and most people think you're a lazy bum. Slowly your life becomes consumed - I was doing 16-17 hour days just moving money around and trading - your diet turns to crap and you start to resent what you're doing. It's at that point you are vulnerable to "breaking the rules" and chasing losses, over-betting or doing other stupid things. Back then I did not have the resources to automate my strategies, so I lost £5k in 2-3 days about 9 months in and thought "time to get a proper job before I do some serious damage", and got back to working for a living. I have since then automated many of my strategies and it's my favourite hobby, but I am under-capitalised and not interested in using other people's money: it will remain a hobby for some time yet, but I can get 10% RoI a month for some strategies, which definitely beats savings. Just need to wait for the bank to grow, and grow and grow... Maybe one day I will be a "professional gambler" again, but really it's just data science and software engineering for a very strange product.
  - joosters 9y ago
    Well done for making it work! In those pre-Betfair years, the logistics of actually getting your bets on must have been painful. We are a bit spoilt nowadays when the betting can be done through an API and everything can be automated (the downside is seeing a large % of profits going to the exchange...)
    - PaulRobinson 9y ago
      The commission structure is tricky, no doubt about it. By the time I hit premium charges (which I expect to), I'm hoping competing exchanges with lower commissions will have got a bit more liquidity in them.
joosters 9y ago
To add to the complications of picking the size of bets, you will always find that you can get more money matched on a loser than you can on a winner... so even after identifying 'value' bets and using Kelly to size your stakes, you may find out that you never quite get enough money on the winners and that will limit your profits too! (Edit: getting the money matched only applies to bookies / betting exchanges, the equivalent problem for tote betting is that the price of winners will often be worse than your algorithms predicted)
- PaulRobinson 9y ago
  Exactly - getting matched is a big problem, and is the main way that bookmakers are able to prohibit winners. Most people in the UK have had their stakes limited after a couple of winners, and it's almost become a joke. Betfair and other exchanges provide more opportunity, but if your Kelly output is telling you to put £5k on a horse on a Tuesday evening AW track race, you are going to have to spend some time thinking about how you _actually_ do that without having the odds spiral in: markets respond to liquidity, and you are liquidity. There are some papers on how to deal with this, but none of them have a solid answer. My solution was to put in the amount Kelly advised and if I didn't get fully matched, c'est la vie!
da02 9y ago
> I could talk for hours and hours and hours Have you thought about just recording yourself talking with a few friends for hours and hours about it and uploading online (e.g. Youtube)? (I don't gamble and never learned statistics, but I am interested occasionally and digging in more details "behind the headlines", so what's why I wouldn't mind listening to this.)
- PaulRobinson 9y ago
  I have actually, but most of my friends are bored rigid by this stuff. I might well do some video blogs actually - nice idea, thanks for giving me the thought!
  - slashink 9y ago
    Wanted to also add my voice here, would love to see a video or a couple of them if you taking about the dynamics of this!
  - thisisit 9y ago
    Though I am not interested in gambling but trading instead. So, even Podcasts will help.
- Bromskloss 9y ago
  > Have you thought about just recording yourself talking with a few friends for hours and hours about it and uploading online (e.g. Youtube)? Although the topic is very interesting, I fear that this might result in rambling, and a low density of information for the listener.
  - da02 9y ago
    I know. But, part of the fun is seeing where the conversation ends up. It's like chat roulette, but without the nudity.
ElCapitanMarkla 9y ago
Would love to hear about your process for working out probabilities, etc. I've had a horse racing project kicking around ever since I was at uni but that's mostly around stats gathering vs prediction models

throa2213 9y ago

Did you gamble experience help you in real life (in case you work for some trading company)?

PaulRobinson 9y ago
I've talked to finance shops (I live in London, so there are plenty about), but they worry about my lack of formal mathematical training and of course they don't want to hire "gamblers". I've got some calls with a few people lined up that might mean I get to make the jump at some point in the next few months. I am enjoying it being a hobby right now, and I seem to be more comfortable calculating and assessing risk and pay-off than others which can be useful in an engineering team with an operations component. So it's helped, but it's not my job, no.

ilamont 9y ago

ex-professional? Why did you stop?

PaulRobinson 9y ago
I started after the dot.com crash in 2001/2002 when work was hard to find. It sounds like a dream job, but actually, it's not. You start to tire of a sport you loved, and each morning you wake up with a pile of cash that you want to make a few percent bigger by the end of the day. You're not adding anything to society, you have no colleagues, there's little to talk about with friends and family, and most people think you're a lazy bum. Slowly your life becomes consumed - I was doing 16-17 hour days just moving money around and trading - your diet turns to crap and you start to resent what you're doing. It's at that point you are vulnerable to "breaking the rules" and chasing losses, over-betting or doing other stupid things. Back then I did not have the resources to automate my strategies, so I lost £5k in 2-3 days about 9 months in and thought "time to get a proper job before I do some serious damage", and got back to working for a living. I have since then automated many of my strategies and it's my favourite hobby, but I am under-capitalised and not interested in using other people's money: it will remain a hobby for some time yet, but I can get 10% RoI a month for some strategies, which definitely beats savings. Just need to wait for the bank to grow, and grow and grow... Maybe one day I will be a "professional gambler" again, but really it's just data science and software engineering for a very strange product.
- joosters 9y ago
  Well done for making it work! In those pre-Betfair years, the logistics of actually getting your bets on must have been painful. We are a bit spoilt nowadays when the betting can be done through an API and everything can be automated (the downside is seeing a large % of profits going to the exchange...)
  - PaulRobinson 9y ago
    The commission structure is tricky, no doubt about it. By the time I hit premium charges (which I expect to), I'm hoping competing exchanges with lower commissions will have got a bit more liquidity in them.

joosters 9y ago

To add to the complications of picking the size of bets, you will always find that you can get more money matched on a loser than you can on a winner... so even after identifying 'value' bets and using Kelly to size your stakes, you may find out that you never quite get enough money on the winners and that will limit your profits too! (Edit: getting the money matched only applies to bookies / betting exchanges, the equivalent problem for tote betting is that the price of winners will often be worse than your algorithms predicted)

PaulRobinson 9y ago
Exactly - getting matched is a big problem, and is the main way that bookmakers are able to prohibit winners. Most people in the UK have had their stakes limited after a couple of winners, and it's almost become a joke. Betfair and other exchanges provide more opportunity, but if your Kelly output is telling you to put £5k on a horse on a Tuesday evening AW track race, you are going to have to spend some time thinking about how you _actually_ do that without having the odds spiral in: markets respond to liquidity, and you are liquidity. There are some papers on how to deal with this, but none of them have a solid answer. My solution was to put in the amount Kelly advised and if I didn't get fully matched, c'est la vie!

da02 9y ago

> I could talk for hours and hours and hours Have you thought about just recording yourself talking with a few friends for hours and hours about it and uploading online (e.g. Youtube)? (I don't gamble and never learned statistics, but I am interested occasionally and digging in more details "behind the headlines", so what's why I wouldn't mind listening to this.)

PaulRobinson 9y ago
I have actually, but most of my friends are bored rigid by this stuff. I might well do some video blogs actually - nice idea, thanks for giving me the thought!
- slashink 9y ago
  Wanted to also add my voice here, would love to see a video or a couple of them if you taking about the dynamics of this!
- thisisit 9y ago
  Though I am not interested in gambling but trading instead. So, even Podcasts will help.
Bromskloss 9y ago
> Have you thought about just recording yourself talking with a few friends for hours and hours about it and uploading online (e.g. Youtube)? Although the topic is very interesting, I fear that this might result in rambling, and a low density of information for the listener.
- da02 9y ago
  I know. But, part of the fun is seeing where the conversation ends up. It's like chat roulette, but without the nudity.

ElCapitanMarkla 9y ago

Would love to hear about your process for working out probabilities, etc. I've had a horse racing project kicking around ever since I was at uni but that's mostly around stats gathering vs prediction models