Wayne Bailey / 13 May 2010 Free Bet

Back in January, I wrote an introduction to trading on Betfair and I've since received some emails asking for some more strategies. So today, I'll take a look at trading previous 'resistance points'.

Firstly, if you are going to trade on Betfair you will need some third party software which gives you ladder views, one click betting etc. There are a number of vendors out there and each offer different features. I'm using Betting Assistant from Gruss Software in the below screenshots and video.

Those who trade share prices or stock market indices will be aware of the 'bouncing ball' theory and the same strategy can be applied to the exchanges - particularly horseracing. If you are new to trading, only concentrate on the clear favourite in markets where there is plenty of money available. Generally speaking, UK racing is perfect from about 12 minutes before the off time - but this can vary depending on how much racing is on in the given day.

Resistance Points

The first thing to do when you open up a market is find the horse's previous points of resistance. Put simply, these are the highest and lowest prices the horse has been matched at in the past. Below is a screenshot of Cabaret's price (2.40 York, 12th May 2010) using the ladder interface about ten minutes before the race started:

The horse is currently trading around [3.35], but you will see that the lowest price matched in the past was [3.20]. We know this by checking the column on the far-right where you can see how much money was actually matched at each price; in this case, €71. On the upper end of the scale, you will see that the highest price matched previously was [3.90] for €100.

So then, the 'resistance points' on Cabaret are [3.20] and [3.90].

To explain our strategy, think of a ball bouncing in a room. If a ball hits the floor, it will bounce back up. If it hits the ceiling it will bounce back down. That's the basis for the strategy.

In this case, we can assume that if the price of Cabaret rises and hits the ceiling of [3.90], it will bounce back down as the backers step back in to take the value. If it shortens down to [3.20], we can assume it will then bounce back up as the layers come in.

In this next screenshot, you will see that I have placed two €100 orders. One is an order to lay the horse at [3.20] and the other is an order to back the horse at [3.90]:

At this point, it's just a case of playing the waiting game. If and when the price hits one of the resistance points, I will wait to see my order get taken. As soon as this happens, I put in my counter order. So if the price hits [3.20] and my lay order gets taken, I will immediately put in a back order at [3.25]. If the bouncing ball theory is correct, the price should bounce back up off the floor and our back order will be filled, thus completing the trade.

Below, you can see that the original lay order has been matched at [3.20] so I've put in a back order at [3.25]. If the price rises back up as expected, my back order will be filled and the trade is successful:

You have to get your counter order in as quickly as possible so you are not put behind a big queue. On the left, you can see how much we can win or lose should or trade go good or bad. If my back order gets matched, I will be in a position to 'green up' the book for €1.46. In other words, once the trade is complete, I can click the 'green up' button and I will win €1.46 no matter which horse actually wins the race.

Breakouts

Life would be simple if everything went to plan but the odd time, the price doesn't bounce off its resistance point and continues to rise or fall. This is known as a 'breakout'. Again, think of the ball in the room; occasionally, it will be travelling so strongly that it will break through the ceiling and end up going higher to the next level (or break through the floor and end up in the basement).

Generally speaking, you can trust the prices to bounce but you must be prepared for a breakout. In the above screenshot, you will see that I have set a stop-loss a few ticks away at [3.0] (the red block on the right-hand side). If there is a breakout, the software will get me out of the trade for a loss. It can be frustrating to get out for a loss but it's all part of the game and you have to be able to accept it and move on. Don't sit and wait, hoping the price will move back your way - you could end up losing serious amounts of money doing that. The good news is that the vast majority of prices do bounce so it's a fairly easy strategy to employ. Pick your markets carefully however and don't bother with lightly traded events (US racing for example). Also, avoid markets where the difference between the resistance points is huge - the tighter, the better.

If you want to see this type of trading in action, you can click on my YouTube video. In that video, I'm trading two horses at once but novices should definitely stick to one horse only until they get more experience.

The final result on that market (after three trades) was a green book of €4.40:

It's not an earth shattering amount but it's certainly not too bad for five minutes of work and as you get more confident, you can increase your stakes as appropriate. Put it this way; I certainly wouldn't mind making four quid on every race of the day!

As usual, feedback, comments and questions are most welcome so feel free to make a post below.

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