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Money Management: They key to increase profit and reduce losses is using proportional stake or ‘updating your bankroll’

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Summary
Summary

Why an efficient and adapted to the bettor money management is so important?

The first lesson I learned when I got immersed in sports betting, is that it does not consist in betting on the most probable winner of a match, it consists on betting on the odds profitability. To invest in Value Bets. If you are betting on the odds profitability, you should be interested in maximizing the profitability and minimizing the risk ok bankruptcy.

Let’s take it bit by bit. From my point of view, there is only a real method to win money betting in the long term:

  1. Find or develop a positive Expected Value method (EV+) that only produces recommended picks with Odds with Value (profitable odds which probability of succeed P, multiplied by the odds O is greater than 1: P·O>1).
  2. Use a variable stake strategy (the amount invested on each bet dependes on the Expected Value of the odds).
  3. Update your bankroll. I mean, follow a money management strategy with proportional stake (bet size proportional to your bankroll) so you will maximize your profit and minimize your risk of bankruptcy.

If you are one of the WinnerOdds users, you will know that our sports betting recommendation method does all the three points for you. It is a EV+ method that only shows you Odds with Value. Besides, the application recommends the bet size you shall bet on each transaction, as a function of the expected value and your automatically updated bankroll.

Money management and why use a proportional stake strategy in order to maximize profit and minimize losses

Money Management and bankroll update

Even using a positive Expected Value method and a variable stake strategy, a series of bets can be lost due to variance, although it can seem to be an impossible bad streak.

If you want this bad streak to be only a temporary circumstance of drawdown instead of a dangerous bankruptcy hard to recover, it is very important to use proportional stake and update your bankroll, so your bet size will adapt to the new situation.

Don’f forget that, when you bet on sports, you are putting at risk your money with the objective of getting profit.

Rule #1: FIXED INITIAL BANKROLL

The rule #1 of the money management in sports betting is setting a fixed money amount at the beginning (or one time per year) that you will never increase, and you can afford to lose.

  • Invest an amount of money, your initial bankroll, that you have saved and don’t need to live.
  • Consider that initial bankroll as the maximum amount of money you are going to invest in sports betting. You shall not deposit more money, speacially if that can become a personal problem.

Under that controlled circumstance, and considering that initial bankroll, take into account that if you choose a too small amount, the profit you can expect will be small, because with a proportional stake strategy, your bets will be always smaller than 5 or 10% in every single bet.

It’s your decision. In my case, I decided to invest 2,000€ I had saved. Neither me, neiher my family, was not going to need it in short term, and it was hold in a bank deposit which yield was a very sad 0.3%. I assumed that there was always a small probability of loosing that savings, but I would also expect a bigger profit with higher probability.

This way is much clearer, isn’t it?. That is to say, if that is my initial bankroll and I have decided not to deposit more money under no circumstance, my objective will be:

  1. To obtain the maximum profit as fast as possible
  2. To reduce the risk of bankruptcy by minimizing the drawdown (that I will suffer for sure at some point).

These two ideas can be controlled easily taking into account the next point:

Rule #2: PROPORTIONAL AND VARIABLE STAKE

As you are observing, updating the bankroll and adapting the bet size to it, is the best tool that every bettor has to prevent the risk of bankruptcy when the results are negative and maximize the profit after coming back to the ascending trend.

If I have won some money, and I don’t sum the profit to my bankroll, then I’m becoming too conservative as the bet size will be smaller related to the real bankroll, because the calculation will be based in the initial bankroll of 2.000€. Therefore I will be limiting the profit.

On the other side, if I am too ambitious and increase artificially my bankroll used in the bet size calculation, let’s say 4.000€ instead of 2.000€, a bad streak can result in bigger losses and a situation close to the bankruptcy that will be very hard to get over. The same happens if, after suffer important losses, I continue considering a bankroll bigger than the real one in order to recover faster, the bet sizes will be too big. That is a common error, because if the bad streak continues, it can become my ‘bankruptcy sentence’ or leave my bankroll fatally wounded.

In fact, this strategy is so important that, due to a bad money management, we are not only diminishing our profit and increasing our risk, we can probably get stuck even with a good hitrate.

That is why a good money management is vital to maximize our profit and control the drawdown.

Money Management is the term that you can look for in order to find many methods to protect and take advantage of your bankroll.

Here, I would like to show you the method I follow, but previously, observe the following simulations:

FIXED STAKE VS PROPORTIONAL STAKE

For the simulation of a series of bets with fixed or variable stake by using Monte Carlo methods, we will define the following conditions:

  • Initial bankroll: 2000€
  • Bet size: S=1 unit (1% of the initial or updated bankroll)
  • Bet odds: O=2
  • Success probability: P=0.52 (so we have a positive expected value method EV+)
  • Expected Value: EV=P·O-1=0.04>0
  • Proportional stake updated every N bets: N=1 y N=10
  • Number of bets: 5,000 (so variance will not affect the results significantly)
  • Number of simulations: 1,000

In order to compare the different methods of money management: fixed stake (bet size proportional to the initial bankroll) or proportional stake (bet size proportional to the bankroll which is updated every N bets), the profit obtained after the simulation (B) in €, the maximum drawdown in percentage % (DD), and the maximum drawdown in percentage % with respect to the initial bankroll (DD IB).

Three strategies have been compared: fixed stake, an hypothetical strategy that consists on updating the bankroll after each bet (N=1), and a more realistic strategy, with which the bankroll is updated after every ten bets (N=10).

Fixed bankroll vs Variable Bankroll simulation

Example of a 5000 bets simulation

By repeating the simulation of 5000 bets 1000 times, we obtain a results distribution, with which we can calculate the average and standard deviation:

Fixed bankroll vs Variable Bankroll simulation

Results with level stake

We can observe that:

  • Fixed stake produces lower DD(%), and also much lower profit
  • Proportional stake with N=10 produces a DD(%) similar to fixed stake, but the profit is 20% higher
  • Proportional stake N=1 produces a higher DD(%), but the profit is 3.3 times the fixed stake profit (230% higher).

Although the proportional stake seems riskier because the DD(%) is higher, we could conclude that in this case, we could reduce the bet size to obtain higher profit with the same risk, or obtain the same profit with lower risk. In that case, the results are shown in the following table:

HIGHER PROFIT WITH SIMILAR RISK

  • Bet size with fixed stake: 1 unit
  • Bet size with proportional stake and N=1: 0.7 units
  • Bet size with proportional stake and N=10: 0.91 units

Money Management. Betting. Fixed bankroll vs Variable bankroll simulation

Bet size in order to obtain similar risk/DD(%)

SIMILAR PROFIT WITH LOWER RISK

  • Bet size with fixed stake: 1 unit
  • Bet size with proportional stake and N=1: 0.56 units
  • Bet size with proportional stake and N=10: 0.85 units

Money Management. Betting. Fixed bankroll vs Variable bankroll simulation

Bet size in order to obtain similar profit B(€)

*Simulations by Miguel Figueres.

As a conclusion, we can state the following:

With proportional stake and a positive expected value method EV+, the profit grows exponentially with the bet size, while the DD grows proportionally to the bet size.

Therefore, updating the bankroll frequently means:

  • For a particular risk, obtain higher profit.
  • For a particular profit, suffer lower risk.

Updating the bankroll every 10 bets could be a situation similar to the real practice (average daily number of bets), so the risk can be reduced and the profit is increased with respect to fixed stake.

Money management using units of stake as bet size

Possibly the simplest, most commonly used and most conservative method is as follows:

You define your starting bankroll; for example 2000€.

The tipster has to tell you what percentage of your bankroll the Stake 1 equals. If the stake 1 equals 1% of the bankroll, you divide the bankroll by 100, i.e. 2000€/100 = 20€.

This 20€ will be our STAKE 1. So if a tipster sends us a prediction with STAKE 3 we will have to bet 20€x3 = 60€.

Recalculate your bankroll every day to know if you have to raise or lower your stake.

For example if your bankroll goes up to 2200€, you do the calculation again: 2200€/100 = 22€(Stake 1).

With this simple way and by updating your bankroll every day, you are sure to greatly reduce the risk of bankruptcy as you will always be betting in relation to your real bankroll. As we saw in the previous simulation, perhaps the best strategy to reduce the impact and come out of the bad streaks less damaged.

Money Management in WinnerOdds

WinnerOdds users do not have to calculate the bet size through the stake, the application does it directly in euros based on our available bankroll. In this case, what is very important to determine every day is the bankroll.

To do this, we must be clear that the bankroll is the available balance plus the sum of the amounts of all the bets we have open.

For example if i have:

  • 800€ at Bet365
  • 1,200€ at William Hill
  • Y 400€ unsettled bets

In that case, the total banking would be 800 + 1,200 + 400 = 2,400€.

In our daily routine, when we have almost all of our bankroll invested in bets, it is difficult to calculate the available bankroll every day because the money we play with is blocked by the bet placed. At WinnerOdds we can use the “PROFIT” indicator that we offer on the WinnerOdds “tracking” page to make the calculation of the bankroll easier. This indicator only adds (and subtracts) the profit we are making without taking into account the investments in bets that are still open.

In this way, calculating the bankroll is as simple as adding the “profit” field to your initial bankroll to know in detail the bankroll you have available.

Total Bankroll (for betting) = Starting Bankroll + Profit Earned

Let’s say this user started three weeks ago and decided to invest 2000€ in 3 bookmakers. He wakes up this morning and finds this indicator on his tracking page:

Money Management: They key to increase profit and reduce losses is using proportional stake or 'updating your bankroll'

What is your total bankroll for betting taking into account that Total Bankroll = Starting Bankroll + Profit Earned?

-> Correct! 2,200€

Which is the amount you will have to indicate to the system in the “Enter your Bankroll” boxes on the Odds page for the automatic calculation of your bets:

Money Management: They key to increase profit and reduce losses is using proportional stake or 'updating your bankroll'

So, every morning, check your monitoring page and modify your bank according to your profit and get a good management of your bank on WinnerOdds.

Example of a user who has already withdrawn money earned with WinnerOdds

Let’s take an example with a screenshot of a WinnerOdds user who has only been betting for a year and we know that he has managed his bankroll very efficiently.

For this reason, most of the curves on his graph are more linear with an overall positive increase from zero to €9,340.45 with not very aggressive DDs:

Money Management Apuestas deportivas WinnerOdds

*Screenshot of WinnerOdds personal tracking tool. (User X) period April 2016 – May 2017

In the image above, if we were to take into account that the initial bankroll was €2,000, following the example above, the bankroll as of today would be €11,340.45.

That’s about right, isn’t it.

This is where withdrawals come into play. For a player who has already earned enough money, it’s time to withdraw. This is when the formula for calculating the bankroll is as follows:

Total Bankroll (to bet) = Initial Bankroll + Profit Earned – Withdrawals

And placing a bankroll of €11,340 on bets is not that easy. In fact, there may be market or personal limitations that make it almost impossible for some players to place those figures.

Firstly, personal or general limitations that bookmakers apply or apply to certain events. And on the other hand your own aversion to losses, which can cause you some stress, betting for example €1,340 on a single bet. Some people can’t tolerate it and understandably so.

So my recommendation for “big” accounts is to find bet sizes where you are comfortable betting and it is actually possible to place your money on the market you are betting on (taking into account the limitations).

And what do you do with the rest of the money? Well, everyone can do what they want, but I would say take it out and invest it in something else, save it or enjoy it.

For me (in my own reality with my own limitations, betting on tennis and with the bookmakers I currently have open) the maximum bankroll that I know I am not traumatised to bet on and that I know I can place in the sports betting market is between €4000 and €5000.

My plan is as follows:

Every time I exceed the €5,000 bankroll, I withdraw €1,000 and start again from €4,000. It’s as simple as that.

This way I can apply the simple calculation I explained above every day and adjust the bankroll to the reality my picks are facing. Increasing and decreasing the bankroll as needed.

So, if my bankroll was as in the picture above, I would withdraw the €2000, which would allow me to bet with greater tranquillity. And as of today, I would have already withdrawn a further €5,000 of that €9,340.45 and my bankroll for the betting calculation would be €4,340.45 today.

Total Bankroll = Initial Bankroll + Profit Earned – Withdraws


Total Bankroll = 2,000 + 9,340.45 – 2,000 – 5,000 = €4,340.45


So, when I reached a total bankroll of £5,000 again (at £10,000 in the total profit indicator), I would take out £1,000 again and my bankroll would go back to £4,000.

This way of trading is not 100% faithful to the simulation you can find above.

But, with this adapted strategy of betting below a bankroll limit that I self-impose, I make sure to:

  1. Bet within limits that do not cause me stress.
  2. Place 100% of the recommended stake amount on the majority of bets I place (which is important for the balance of the variable stake method).
  3. Adjust my bankroll according to the results in order to maximise my profits (return on the money I invest) with a given risk.
  4. Establish an easy withdrawal strategy, so that my effort and time spent is rewarded. What will change will be the time between withdrawals.

Conclusion:

Sooner or later a DD will come. Keeping a close eye on my banking, updating it every day, allows me to control that the risk of bankruptcy is not high. It also allows me to get out of negative streaks in a more stable way, and to take advantage of the profitability of an EV+ method.

Useful links:

The influence of luck in betting.

I hope you liked the article, that it aroused your curiosity or that you are at least aware of the importance of managing your bankroll when betting in order to maximize your profits. See you in the comments!

Complete the article: Have these suggestions helped you? What strategies are you using to adjust your bankroll to your results? Is it helping you to maximize your profits? Do you know of any Money Management method that you can recommend?

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Autor
Miguel Figueres
Miguel Figueres
BTC/ETH FTW Civil Engineer. Associate Professor at UPV. Specialized in Artificial Intelligence. CEO and creator of @WinnerOdds

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