Whilst trading the tennis the other day I was reminded how important it is to try and predict what the market will do as opposed to predicting the outcome of the event. This was during the tennis match between John Isner and Novak Djokovic. The first set went to a tie break and I thought Isner looked great value as Djokovic was struggling to break him and getting very frustrated and so I backed Isner when a mini break up. The market must have assumed he had the set in the bag and he did go on to win it but as soon as the next set started Isner’s price actually crept up rather than went smaller.
I realised that the market were pretty clear about thinking a Djokovic comeback was on the cards and as Isner wasn’t gaining hardly any points on Djokovic’s serve, I realised that there was a very good chance of seeing much shorter prices on Djokovic and so I switched my position completely. Djokovic went on to break Isner and win the set and I was able to trade out. Incidentally Isner went on to win the match and so my initial feeling of the value being with Isner was right but the way the market was and based on what could still happen with plenty of time left, it made more sense to back Djokovic. This is because the market strongly believed he would come back and after making it 1-1, their opinion was reinforced and I think Djokovic traded as low as 1.25.
My top 3 tips for trading are:
1) Get your trades in early when prices have diverged from the start price and with plenty of the match to be played
2) Think about where a price is based on where it has been in the match and where it might go in the future.
3) Always make your trades considering what the market is most likely to do and not what you think will happen
Follow the above and it’s pretty easy to profit from trading as long as you aren’t too greedy. Remember you are looking to trade between the high and low points of the graph in terms of where the odds of been so learn to be happy with smaller swings. They are much easier to consistently predict and carry much less risk.