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================================================    Thursday, March 11, 2004
 
Conceptual Design of Money Management System

Hello everyone,

Here is an interesting post by Lou E. from the LTW discussion forum.

"There are a several items that conceptually don't make sense to me with IBS that, if changed, make the system better.

First, the idea of betting a static unit until a win (to not lose big on long losing streaks) is making a false assumption that the losing streaks can only come in the beginning. Obviously, they can come in the middle or end just as easily, so there is no reason to put in a rule to eliminate losing streaks at the beginning of a series.

Secondly, it would seem to me that the whole idea of a betting progression would be that a winning bet either wins your initial staking unit or cancels out two or more losing bets (or to be technically correct, can also cancel out a losing bet and the initial staking unit). So, you should not have a series of wagers going 1,1,1.

Third, the idea of canceling out the lowest value units first means that on those series with a high loss to win ratio, you must place progressively higher bets to keep within the system. As long as a winning wager cancels out two or more losing wagers, there is no magic in which losing wagers you cancel. However, changing the ones you cancel could significantly change the number of units you have to bet on a single wager.

Combining these thoughts, you would start increasing the betting unit after the first loss and and when calculating the next betting unit use the lowest and the _highest_ previous wagers to cancel out two losing bets (or a losing bet and your initial stake).

So, if losing, the bets become 1 (initial stake), 1, 2, 3, 4 (highest and lowest is 3+1), then if a win comes on the next bet (betting 5), it would cancel out the 4 and 1 and you would be left with 2,3 so the next bet would also be a 5.

There is no reason that a winning bet can't cancel out three bets, but then the losing streaks require higher wagers. And if you are betting a slightly lower than 50% proposition, it doesn't really matter if the minimum winning percentage is 26% or 34%, you will still come out way ahead.

Also, the discussions to date have been using one series of events (baccarat, pass, red, etc.), but if you could use multiple series of events simultaneously, then when one event goes on a losing streak, the others could be winning to offset the losses.

For example, using a sports picks of say 3 picks per day, you could be running multiple series simultaneously. If say, "position" 1, had a win, but positions 2 and 3 had a loss, then the next day, for "position" 1 you would still bet 1 unit, but positions 2 and 3 are 2 unit wagers. The more series you run simultaneously, the more even the bankroll changes.

I am using roughly 20 sports picks a day (varies Saturdays have a lot more than Mondays, etc.), using 1/2 unit plays on a 200 unit bankroll. If one of the positions loses 10 in a row, that's still only wagering 5% of the bankroll. and if the "positions" all go 3-4 for the week (ending the series with a win), that's 30 units net (60x1/2) on a 200 unit bankroll.

Based on years of experience in sports wagering, I was of the school that it is a grind it out way of making money, looking to make money with a 55-57% winning rate. Where shopping among sports books for an extra half point could make the difference between a winning and losing day. Where a sports book offering odds of -107 or -105, instead of the standard -110 was crucial.

With this mentality, an edge in the line is an edge and should be wagered upon. If value was available, take it and look for as many opportunities as possible -- if you find two games for the day, fine, but if you find 10, great, they should all be wagered upon. 55% of 10 games is better than 55% of 2 games.

Not believing in Games of the Week, Month, Year or "Locks" (though I do believe that stronger picks should receive more than average picks), the only way to make more was to bet more -- increasing the size of the wagering unit.

However, this has changed dramatically with the application of money management techniques. If something like IBS makes sense for wagering applications where the expectation is less than 50%, how much more sense does it make for wagering applications with a win rate of 55-60%?

My bankroll now grows much faster and there are fewer significant downdraws. The only problem is resisting the urge to increase the unit size faster since a long losing streak is bound to occur and unused bankroll may be needed. I now look for sources of additional picks as opposed to increasing unit size since it smoothes the variations more in the bankroll than does increasing the unit size.

On underdog money lines, I still bet whatever amount is next up in the series. If you win, you win more than expected and if you lose it still saves you a few bucks since you would lose $100 instead of $110.

On money lines with a favorite, I have experimented with both simplicity and exactness. Simplicity says just ignore the extra premium and make a little less than expected, which may be offset by winning a few underdog picks where you get extra. Exactness says the actual units wagered would be 1.1 (to win 1 unit with normal -110 odds), 2.31 (to win 2.1 units -- 1 + 1.1), 3.641 (to win 3.31 units -- 1 + 2.31), etc. With many offshore sports books, you can wager down to the exact penny if you like. Exactness wins more, but you also wager more.

As far as odds like -200, I simply pass. I don't wager when the odds are greater than -125, which is based more on personal preference rather than hard math. Since there is an abundance of wagers available at shorter odds, I have no problem passing on a couple of events.

One point that bears repeating though is the idea of multiple "positions." Having winning series concurrently with losing series does a lot to cushion the blow of a long losing streak. This is where sports betting is vastly superior to table games -- maybe even more important than a higher winning percentage. Of course, table games provide significantly more decisions than sports betting.

Let's say you have a source that usually has up to three picks per day. I put those picks in Positions 1, 2 and 3, just like they were three different series, or three different games of baccarat.

Let's assume that the first series goes LWLWLWLW, etc.

Using an initial stake of $100, the first bet is $110 to win $100 and it loses, so the series is 100, 110. You now bet the first and last in the series (100 +110), so bet $231 to win $210. It wins so you cancel out the losing bet of $110 and win your stake of $100. So in a LWLW series -- 50% winners which would normally be a losing proposition in sports betting, you end up winning 5 units in 10 games.

Position 2 might be something like LLWLLW, etc.

The series would be 100, 110, 231 (then bet 231 + 100 = 331/1.10 = 365 (I always round up any fraction). The winning bet cancels out the 100 and the 231, leaving 110, so the next bet is 121 (loses), then 255 (loses), then 402 -- wins canceling out the110 and the 255, leaving 121 in the series. So with a 33% winning percentage, you are just slightly negative as the vig builds up, so, generally speaking, a 34% winning percentage or higher ends up winning when you end a series.

The third position might be more realistic and win 55%. Let's assume 100 bets, winning 55 and losing 45. With a normal 110/100 odds, flat betting you would win 5.5 units. With this method, if we assume that 30 of the loses were cancelled out by by 15 wins and 15 of the wins cancelled out the initial stake and one loss, then 25 wins were the initial bet in a series winning just the stake, you would now win 40 units in 100 games compared to 5.5 units.

Please note, however, that you put more of the bankroll at risk to win the 40 units than you did to win the 5.5. In my first post, I said use half units on a 200 unit bankroll. Someone wrote me and said that's the same as 1 unit on a 400 unit bankroll. Well, yes it is, but the point I was trying to make was to make your initial stake _less than_ what you would normally be flat betting since with losing bets you will end up making bets larger than you would flat betting.

The key point is that a winning wager either wins the stake, cancels out a losing bet and wins the stake, or cancels out two losing bets. I no longer look at a loss as a loss, it's now just not a win yet.

From this basic scenario, I have tried several tweaks to make it better. For example, if your source has up to three picks per day, you could use the picks in the order presented, or by sport. If by sport you may have three series for NBA, three for college BB and three for hockey all going at the same time. This could leave some losing series open for a while, but the theory is that the source wouldn't lose x number in row of the same sport, but could lose x number in a row by having a bad run in several sports at the same time. I didn't test this extensively, but there wasn't much difference.

A tweak that I have now incorporated into this system is to place losing wagers in the next _vertical_ position as opposed to horizontal. For example, if the three series looked like:

100, 110, 231
100, 110
100, 110

and you lost, won, won instead of:

100, 110, 231, 365
100
100

I would have the series look like:

100, 110
100, 231
100, 365

And since I am using an Excel spreadsheet, I average the second number in the series, so that it becomes

100, 236
100, 236
100, 236

Some other minor points:

1. If the wager is an underdog money line, say +120, I still bet the next number in the series, and just make a little more.

2. If the wager is greater than -110 and it loses, I adjust the series to account for what was actually wagered. For example, with a -120 loss, the series becomes 100, 120, not 100, 110.

3. When reaching 5 losses in a row (it happens, but not that common), I have played with several things to lower the amount wagered to keep it within a reasonable number. Nothing I have happy with, but I change the rules slightly to have a winning bet cancel out only one losing bet rather than two, so the bet stays a reasonable percentage of the bankroll.

4. Sources that have a consistently higher winning percentage have higher initial stakes than those with lower winning percentages.

5. If one source goes for Team A, say with a $110 wager and another goes for Team B with say a $231 wager, I bet only the difference of $121 on Team B. I still record the win or loss for Team A and the full amount for Team B, but save on the vig, making a little extra.

6. To keep the math relatively simple, I still use -110 odds even if I actually get -107 odds. Again, making a little extra than the initial stake when the series ends.

One final thought is that I believe the biggest strength in this system is the ability to carry on multiple series simultaneously. So winning sources can cancel out the losing sources even before the losing sources series ends. I believe that this makes it significantly better than a table game where you can only play one series at a time.

I have made a change that has improved the returns. For the first bet in the sequence, I am using two units so that every winning bet will now be canceling out _two_. The two will be either two losing bets, a losing bet and the initial stake or two initial stakes, so now, no matter where the loses show up, a 33% wining percentage is essentially breakeven.

So instead of:

100 (initial stake), 110, 230 it will be 100, 220, 350

This sequence gets into higher wagers immediately (which is a good reason to keep the initial stake at less than what you would wager flat betting), but now the good sources that go on a 3 or 4 game winning streak really boost the returns.

I have received several private emails, with one big question, how much can you make? This past week, the return was over 20%.

Hope this helps,
Lou"

Thanking Lou for his valuable contribution.

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Wishing you all the best,
Until next week,
Izak

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