Forex and sports betting, are there any similarities? Although both of these fields seem worlds apart, a deeper study reveals some engaging lessons that forex traders can apply immediately.
Overview
Are there any parallels between trading forex and the world of professional sports betting? Although these two fields sound unrelated, a deep dive into each presents some surprising and beneficial similarities that can ultimately help forex traders.
We will achieve this objective by studying legendary professional sports bettors such as Bill Benter, Jon Price, and Billy Walters.
Law of large numbers
Any form of gambling in sports requires an understanding of the law of large numbers and probabilities. The law of large numbers forms part of probability theory, where the outcomes of performing the same experiment over an extensive sample size should reach near its expected value.
For argument’s sake, let us assume a football bettor wants to know the probability of team A winning against B. If we consider the outcomes of any football match (win, loss, or draw), we can conclude the probability to be 33%, which is the expected value.
The law of large numbers, in this case, would state the more a bettor continuously bet on each football match, they should have a win rate of 33% over time. In forex, although this concept isn’t as straightforward, the probabilities are still fixed at 50%.
We should gather over the long run that one shouldn’t expect to win above this percentage. In sports betting, the most successful find ways of having large winners when the probabilities are in their favor. In forex, the aim is simply the same: large winners when the odds are in our favor.
Fortunes are made over the long term
Bill Benter is arguably the most successful horse racing bettor in history who has reportedly profited more than $1 billion over the course of 30 years. Part of the algorithm he developed for choosing bets in horse racing relied heavily on volume by taking a long-term approach and measuring profits in yearly intervals.
The maths wizard understood that if he churned many bets every day, 1 or 10 stakes wouldn’t have been a sign of true success. Instead, the finer indicator is betting over the long haul, which is where his edge played out exponentially. His fortunes were an accumulation of smaller wins along the way rather than winnings that came in a few bets.
This lesson is certainly applicable in forex, where the most profitable of traders have taken multiple trades over several years. Their success is mostly a result of consistency in the long term rather than celebrating the effect of short-term gains.
Luck does exist, but only when you’ve prepared for it
To paraphrase the iconic Roman philosopher Seneca, indeed, luck does exist, though only from intense preparation in opportunities rather than wishful thinking. In a game of probabilities like forex and even sports betting, there are often arguments on the role of luck.
Truthfully, luck is an element, albeit a tiny one that does not go above skill, opportunity-seeking, and preparation. If we look at a sports bettor such as Jon Price, the American is known for several daring, but successful wagers in his career that people believed were a result of pure luck.
Getting to his level of confidence took him understanding the risks involved and a profound understanding of everything he needed to be successful.
The hot hand fallacy
The hot hand fallacy is among the main reasons why traders lose money in the long run. Professional sports bettors understand not to fall victim to any of these by never assuming anything and that no one knows the future of any outcome.
The hot hand fallacy is a cognitive, social bias where one erroneously believes a successful result will repeat itself on consecutive occasions. When related to trading, this idea is analogous to a winning streak where a trader believes their next position or several positions will be winners.
Those who fall into the trap of this fallacy underestimate or disregard that the probabilities remain unchanged. No matter the belief one has over a trade set-up, the chances of it failing are the same as any other.
Drawdowns are part of the game
Billy Walters is one of the most successful sports bettors of all time and is known for an impressive 40-year winning streak. However, as a professional gambler, the man has admitted that losing days and weeks are prevalent and shouldn’t be a surprise. In trading, drawdowns are also inevitable since we deal in a largely probabilistic environment with no certainties.
Managing your bankroll is paramount
It is incredible that amongst the legions of people who lose money betting sports or other gambling forms, an elite few have been tremendously successful. The uneducated gamblers tend to make one or several large bets which they cannot afford.
Even if they’ve won a substantial amount, there never is a reason to risk a significant chunk afterward. In forex, we can best mitigate these situations by ‘managing our bankroll,’ i.e., proper money management. Such type of management necessitates accurate and consistent position sizing on every trade.
A small percentage of sports bettors ever become consistently profitable
Gambling and trading are zero-sum games, meaning that one person’s gain equates to another’s loss. Despite all the publicly available information that makes one successful in either field, statistically, there is a considerable discrepancy between the losers and winners.
So, what separates the winners from the losers? Quite simply, the successful traders and sports bettors:
- Apply themselves more diligently to their craft for years.
- Understand the realities of their fields.
- Find the right information.
- Are in it for the long term.
- Have mastered discipline and psychology.
- Appreciate that good money management is a deal-breaker.
Conclusion
Although forex and sports betting seem totally unrelated, both fields require extensive research, seeking situations when the odds are in our favor, understanding discipline, psychology, and money management.
