getting edge in sports betting markets with novel information or better models

. . .

i've been writing things about sports betting.

this is about getting edge by predicting outcomes better than the market.

it's really really fkin hard - but i'm gonna talk about it anyway read the full article here because it's comprehensive and massive and contains a bunch of statistical modeling code:

robotjames.substack.com/p/sports-betti…

or, if you don't wanna, at least read the first part of this spiel here: x.com/therobotjames/…

trading to stay alive.

your risk is slippery.

you put a position on at a certain size.

your position gets bigger or smaller on you with the whims of the market

and sometimes the asset you're trading starts moving a lot and so does your risk. if you're long only investing for the long run, it can be fine to just buy things and leave them alone.

this is reasonable because, if you are long an asset:

- your position gets bigger as you make more money
- your position gets smaller as you lose money

shorting dogshyt perp listings on binance
. . .

what happens immediately after a new perp is listed on binance?

well, on average they go very down.

future of finance innit. in this article i show you how a naive approach to trading this kinda works, but is strewn with blow up risk.



and then i show you some dead-simple modifications to:
- dramatically improve strategy performance
- mitigate the chances of getting rekt robotjames.substack.com/p/shorting-per…

trading through extreme chaos.

much of my insufferable schtick on here is...

“you can get away with doing very simple things if you pick the right place to do them”

you can also get away with doing very simple things if you pick the right time to do them. when the proverbial excrement really hits the proverbial fan, a lot of shit starts dislocating in very clear and obvious ways.

this is due to forced trading.

people trading because they have to, rather than because they want to.

you can still get away with dead simple trades if you pick the right place to do them.

i'm going to show you how to do basic white girl pairs trading in crypto perps. like everything i share, it’s going to be very straightforward.

i’m not going to ask you to do anything cerebral or difficult.

pairs trading for dickheads

when an online “kwant trader” starts writing about pairs trading i usually want to stab myself in the dick.

but, since i am both an enormous hypocrite and a better writer than the rest of you, i am going to talk about pairs trading today. i’m going to tell you what pairs trading is.

and why and when it works.

and why and when it doesn’t work.

we’re going to run through a simple example. and i’m going to give you everything you need to trade it yourself, with nothing more than tradingview and a pair of hands.

a chat today reminded me that the crucial first step in any successful trader’s journey is to…

stop doing really dumb shit. if you have no edge (and i think we can both assume you won’t at the start) then there’s nowhere for returns to come from.

you can’t make money like that

but there are plenty of ways you can lose money.

one of the most important things i tell people over and over again, like a stuck record, is that their trading should look like a useful thing that sucks. you know that there are extremely sophisticated trading firms out there with ultra-low latency infrastructure and sophisticated modeling techniques.

and you might reasonably ask how you, as an individual, could possibly compete with that.

nearly everything that is a good repeatable trading idea looks like:

"under <some circumstances> this thing is likely to be too cheap/rich because <some people> are being forced or greedy or stupid... so the thing is more likely to go up/down in the future" your job as trader, operating in an efficient, competitive market, is to tell yourself that your idea about that is probably bullshit.

and quickly prove to yourself that it is indeed bullshit.

destroy those hopes and dreams quickly... and move onto something more productive.

all active etfs are trash.

under the premise that all active etfs are trash, i looked at what it would look like if you could shorta bunch of them against an equivalent SPY long.

the legs are sized to equal volatility based on 120 day rolling realized vol. highlighly scientifically, i looked at etfdb and picked 15 active / tactical ETFs based on their name and category.

andy's top didn't last all year, but it lasted 32 days.

is that a lot or a little?

it's a lot

if you called a top on every new 252-day high, most of the time, the call would fail the next day

the expected length a top would have held is 9 days

andy's top is 95% percentile

https://twitter.com/dampedspring/status/1790834572743073947

that the median case is to fail straight away should be self-evident.

if the market was 50/50 up or down on a given day, half of the time the top call would fail the next day.

but, as you know, the market prefers to go up, so the most common outcome is it failing the next day.

i think people new to markets massively underestimate how noisy everything is.

your job as trader is to try to work out when stuff is likely to go up or down, right?

then you can bet.

any trade might not make money but do enough good trades and you're likely to over time. the problem you have, is that things go up or down for a million different reasons.

and the massive majority of those reasons are unknowable before they happen.

why?

cos tons of people are betting on this stuff, so all the obvious stuff gets priced in beforehand.

trading is hard.

if you disagree, that's cos you haven't done it for long enough.

you can get lucky for a while - but your luck will inevitably turn

you can find yourself doing the right thing at the right time for a while - but markets adapt quicker than you can, typically. extracting returns from the market, persistently, over years and decades is tough.

it requires pragmatism and flexibility.

it requires you to be decisive about trade-offs, in a world of incomplete information and massive uncertainty.

many are dunking on this.

it's a good example of how NOT to look for trading edge:
- assume market is full of inefficiency
- try a bunch of random trading rules
- find something that looked good in the past
- assume it'll carry on looking good in the future
- "trading is easy"

https://twitter.com/TaschaLabs/status/1782123826685382930

seasonal regularities do exist in markets but you ain't gonna find them like this.

ideally you need:
1. to identify some causality
2. to get some confidence, in walk forward analysis, that "thing that behaved some way in the past is likely to behave a bit that way in future"

i saw a bunch of people saying that high-ish interest rates were very bad for risk assets.

you shouldn't believe it when ppl say stuff like that

ppl say all kinds of dumb stuff

and you can investigate it yourself in five minutes to see if it's bollox or not. this page lists historical total returns on stocks, bonds, and bills, and historical yields since 1928.



we can pull that into excel with Get Data > From Web, then pasting that url.

here is the data pages.stern.nyu.edu/~adamodar/New_…

if you try random trading rules on raw data, you'll find a lot of stuff that would seem to have made money in the past if you'd been trading it.

but you're unlikely to have achieved anything useful, even if your simulation of all the frictions involved was perfect.

https://twitter.com/AgustinLebron3/status/1770094306583536035

the main reason for this is luck.

your raw data contains a lot of non-randomness.

sims on options contacts, especially, are full of unintended bets.

contracts are incomparable with themselves as price moves relative to their strike, and as time approaches contract expiry.

one dangerous belief that some seem to have is that certain risk exposures are "safe" at some points in time and "dangerous" at other points.

risk exposures are never "safe".

at any point, something totally unexpected can happen and wreck that position. say you're in some short position cos you think the market is pricing something too rich.

maybe you think it's about 2% rich. lets say you're right about that.

you effectively have a 2% buffer to be wrong.

at some point, volatility is going to spike a lot.

and lots of you are going to get rekt cos you didn't have a good plan for what to do, or you didn't stick to it.

i can't have that on my conscience - i got enough already - so pls read this and make a plan. you need to be prepared to TRADE to keep your risk in line.

the market is constantly giving you risk you don't want.

there's no excuse for just accepting that.

if the market gave you risk you don't want, you gotta trade to push your risk back to what you wanted.

options are annoying because they're constantly changing in duration and maturity.

they're slippery.

you put on the risk you want, but the market soon gives you different risk - so you have to do a lot of pushing positions back towards the ones you wanted. and, analytically, the price of an option contract is pretty useless.

an options contract becomes a totally different set of risk exposures when the underlier moves relative to the strike, and as time passes.

one thing about markets is that something stupid is happening all the time.

the closer you look, the more you see stupid and irresponsible things happening all over the place.

and you might think, perhaps, that was is happening now is uniquely stupid and irresponsible. but it’s probably not.

reckless gambling has been a feature of markets since day 1.

the market is set up for it.

and set up to absorb it, for the right price.

if you have been paying attention recently, you may have heard whispers of the dangers that the rapid growth of the Forex Repo Market may pose to the financial system.

but what is the Forex Repo Market? despite its relative obscurity, the Forex Repo Market is a pivotal component of modern finance, facilitating short-term currency liquidity like no other mechanism.