Betting Psychology and Risk Management

This post is partially motivated by the incoming surge in official picks we are going to have as well as the dismay here some have experienced with the downturn we've had over the past few weeks. Risk-based moneymaking is not an easy pursuit and the vast majority of people who try their hand at it fail. It is important that you arm yourselves with as may tools as possible so that you will be in the profitable minority. Most people find it difficult enough to look at their investment portfolios during a relatively mild downturn, and that's with professional hedge fund managers doing insulating them from the very real challenges of risking our money and making a profit from it. Anyone who is active here is choosing to take that risk into their own hands. There are big rewards for this but also very big risks. This post is about preventing you from being taken out by those risk.

The primary way that we mount our offence us through our edge. A statistical edge is generally very hard to establish because you need large datasets to smooth out variance and you also have to be confident that your dataset is not obfuscated by not like for like data or confirmation bias. Going on a winning streak where you hit fifteen pick'ems out of twenty is not enough to establish an edge - it's scarcely two standard deviations, so about a 5% chance that what you witnessed was pure luck (and that's before we get into overrounds). Conversely, hitting only five out of twenty does not necessarily indicate a losing strategy, it is very plausible that you just had an unlucky streak.

Over the coming weeks, there will be losing streaks. When there is as much volume on official picks as there is, there will inevitably be some days that are more or less total bust. On any given sequence of coin flips, there's a roughly 3% chance of it landing tails five times in a row. I would encourage anyone who has not to backtest the official picks for last year. It will give you a bigger picture perspective that will help you to maintain confidence when going through losing streaks so that you are ready to benefit from winning streaks.

Our primary defence is built around bankroll management. It can be misleading to think of you bankroll as being $5,000 say because that implies that once you blow through that, you're out. Your bankroll should more be considered a virtual money block you'd be willing to invest in a macroscopic asset class, such as Bitcoin or the S&P 500. There is a small but appreciable probability that you'll have a strong edge and you take sensible trades but you just blow through your bankroll through sheer bad luck. If that happens, you should have additional reinforcements you're able to bring in to sustain your edge.

On top of that, the sheer volume of picks can bring you over your entire bankroll when you take into account futures picks (which is part of why you may maintain separate bankrolls for games and futures). The important priority is not the overall amount of money itself, it's liquidity and being able to access it when you need it. When considering your virtual bankroll sizing, ask yourself how much you'd need to set aside for the case of the unluckiest possible permutation of teams you bet on choking and throwing away leads in freakish manners while their opponents get the spawniest jammiest luck imaginable. Factor into account the possibility that your edge changes for worse or that you misjudge it. However much you're able to blow through without being affected by the loss should be your guide for your bankroll.

Bringing all of this together is betting psychology. It's a tough game and your emotions will be tough to handle at times. It's imperative that you only bet with a clear frame of mind according to your edge and that you don't get tilted from losses and especially that you don't revenge trade or trade out of boredom. Good betting is boring and successful betting requires you to aim and time your entries like a sniper. If the price does not enter the kill zone, don't take it. Only after you have mastered these fundamentals can you avoid giving your gains back to the market and instead make a sustainable profit in the long run.

Good luck and good gambling!