There are generally three types of traders: Fundamental traders, technical traders and traders that use a combination of both fundamental and technical data.
Financial market traders years ago – long before the advent of sports trading as we know it – only used to use fundamental data to inform their trading decisions. Data such as company profits and/or losses, personnel changes, weather etc. and how they thought this information would affect the value of a particular equity or commodity. Then came along these rather strange guys, in the form of technical traders, with roles of graphs under their arms (they were treated with some considerable suspicion at the time) claiming that past price action of an equity or commodity could be used to predict future price action. These days I think it’s probably fair to say that technical analysis is probably the dominant approach to trading – particularly for small traders trading their own accounts – although fundamental data is still recognised as valid by some.
So how does this reflect on sports trading, and in particular, the trading of horse racing odds (my particular area of interest)?
Fundamental data of horse race trading involves the analysis of information including, horse, trainer and jockey form, ground conditions, weather and draw bias to mention but a few. These are what I view as the ‘physical’ elements that go into a race and can be used by some to try and predict the probable outcome of a race. However my argument is, do we need to know this to be able to trade successfully?
My personal view is that we don’t. All of this fundamental data is distilled into the price of a market at any given time, therefore price and price action is generally all we need to know. The screens we have in front of us as we trade are our window through which we can see, second by second, the views and opinions of others as they commit money to the market. I think this is a very important point – the views and opinion of only those who are prepared to ‘back them up’ with cold hard cash are relevant. The views and opinions of others are absolutely irrelevant.
You have probably surmised by now that I am a technical trader, and I who go as far as to say that price and price action data is all that is required to be a successful sport trader. Everything, and I mean everything, is reflected in the price and its action of all of the participants in the market. All of the fundamental data (horse, trainer and jockey form, ground conditions, weather, draw bias etc.) is already factored in to the market price at any given time. My argument therefore would be, why look anywhere else for more data to enable you to have a view ; it only has the potential to ‘skew’ your opinion.
The important thing to remember however, when it comes to price and price action, is that it is a reflect of the net opinions of the group, i.e. the traders, punters, bookies etc. that are actively participating in the market. Group and group dynamics are a fascinating topic, and one which I have studies in my previous career as an Addictions Therapist. The group itself is a separate entity to the participants of the group, and it has its own separate dynamic to the individuals that make up the group. As each individual, with their own unique views, opinions and goals, joins or leaves the group, the group as a whole has to modify itself to accommodate that change.
I tried an interesting experiment yesterday, which involved turning off my charts and the volume indicator on my trading screen (so I had no idea where the price had been previously), so all I was left with was the price and its action. It was fascinating to ‘feel’ the sentiment of the group dynamic as the elements of supply and demand played out in the market. The ebb and flow of the price, its reaction to certain levels, the building of activity as the race neared post time, it was all playing out before my eyes is a way I had not quite appreciated.