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Scalping and coin tossing
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by Bradbiggs2012 » Wed Nov 23, 2011 1:10 am
I am trying to learn how to scalp but in the one click menu when i back and lay a bet on a horse the profit margin will be in red and the profit and loss will be in green and all the other horses lines will be in red some one please explain to me what numbers should i be looking at thanks for all your help in advance
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Bradbiggs2012 - Posts: 1
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by goran2k1 » Thu Nov 24, 2011 5:31 pm
Did the original 'biased coin flip problem' get answered on this thread? I calculated that it's a negative expectation proposition of 0.84 i.e. you will lose 16% of your stake over the long run.
Calculated as:
(0.7)*(1.2) = 0.84
Where:
(0.7) is your win rate with the biased coin
(1.2) is your decimal odds (1/5 converted to decimal)
...as you are risking an average loss of 5 euro for every 1 euro you win)
In trading terms you can think of this as a win rate of 70% where you profit one tick but lose 5 ticks when you lose. Anyone else get this?
Calculated as:
(0.7)*(1.2) = 0.84
Where:
(0.7) is your win rate with the biased coin
(1.2) is your decimal odds (1/5 converted to decimal)
...as you are risking an average loss of 5 euro for every 1 euro you win)
In trading terms you can think of this as a win rate of 70% where you profit one tick but lose 5 ticks when you lose. Anyone else get this?
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goran2k1 - Posts: 7
- Joined: Mon Nov 14, 2011 5:15 pm
- Location: Getting ready to Split!
by Ferru123 » Thu Nov 24, 2011 5:45 pm
Hi Goran
If you have a 5 tick stoploss and a 1 tick offset, then I'd have thought your strike rate will be way above 70%.
The maths that proves scalping works is highly advanced. Have a look at this paper, which addresses the maths of market making (which is essentially what reverse book scalping is): http://www.cis.upenn.edu/~tanmoy/papers/CK11.pdf
I won't pretend to understand even 1% of the paper, but my guess is that the following basically means 'don't worry about spikes':
'The contribution of events where a price jump larger than Ct occurs to the expected profi t is negligible'.
Interesting, the article also says the following, which sounds like another way of saying 'range trading works':
"Pure market making strategies have no view or opinion on which direction the price 'should' move. Indeed, as we shall show, the most profitable scenario for a market maker is one in which there is virtually no overall directional movement of the stock, but rather a large amount of non-directional volatility.
...
Market making is pro table when there is a large amount of local price movement, but only a small net
change in the price.”
Jeff
If you have a 5 tick stoploss and a 1 tick offset, then I'd have thought your strike rate will be way above 70%.
The maths that proves scalping works is highly advanced. Have a look at this paper, which addresses the maths of market making (which is essentially what reverse book scalping is): http://www.cis.upenn.edu/~tanmoy/papers/CK11.pdf
I won't pretend to understand even 1% of the paper, but my guess is that the following basically means 'don't worry about spikes':
'The contribution of events where a price jump larger than Ct occurs to the expected profi t is negligible'.
Interesting, the article also says the following, which sounds like another way of saying 'range trading works':
"Pure market making strategies have no view or opinion on which direction the price 'should' move. Indeed, as we shall show, the most profitable scenario for a market maker is one in which there is virtually no overall directional movement of the stock, but rather a large amount of non-directional volatility.
...
Market making is pro table when there is a large amount of local price movement, but only a small net
change in the price.”
Jeff
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Ferru123 - Archangel Professional
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