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How to Stake Your Bets Correctly

The way you stake your bets as a punter is just as important to success as being able to back the right horses. If you don't get it right, then it won't matter how profitable your betting decisions are in the long-term... inevitable losing runs will eventually force you to lose all confidence in your approach and / or go broke. 


I receive regular emails from punters asking advice on the best way to bet, so I thought it was worthwhile to outline the basics of what I do, which is similar to many other professionals. 

Firstly, it's important to understand that the fundamental goal of staking your bets is to:


 "Maximise real profit dollars within a risk threshold you are comfortable with."


It is however worth making a key point about the last part of this statement. Whatever approach you take to staking, the most important thing is that it sits within your comfort zone.  If at any time you start to feel uneasy about the way you are betting and in particular the amount you are betting, then it's time to review and change. If there's anything certain to guarantee failure as a punter, it's betting out of your comfort zone. 


THE KELLY CRITERION 


My recommended approach is a modification of the popular Kelly Criterion, which was created in 1956 by American scientist John Kelly. It provides a way to calculate the optimal bet size for a given situation, so that the long-term growth of your bankroll is maximised. It does this better than any other method.


Basically, when betting "Kelly" you are betting to WIN a certain percentage of your bankroll based on the odds received. The percentage of your bankroll you are aiming to win depends on the overlay being offered about the particular horse. 


There are however a number of practical issues for punters in using what is termed "full Kelly", which include:


1. The punters ability to precisely know their true advantage on any race (we tend to overestimate.)

2. The incredibly large bets called for at short odds (a 10% edge on a $1.50 horse suggests you should bet 20% of your total capital.) 

3. The overall volatility that results from the approach, which virtually guarantees to take a punter out of their natural comfort zone.


To put it simply, the Kelly Criterion method maximises the profit aspect of the goal statement I mentioned above, but largely ignores the risk threshold an individual punter may be comfortable with. 


It's generally accepted these days that something like 25% to 33% of the full Kelly bet size is workable for punting and many of the big betting syndicates across the world use such an approach. 


These syndicates however have the right intelligence and historical proof of calculating their true advantage on a particular bet. The average punter does not have that certainty and it's therefore very easy to overestimate what your winning edge really is. That's very dangerous when following the Kelly method.


RECOMMENDED APPROACH - PROPORTIONAL BETTING


This approach takes the principles of the Kelly Criterion and modifies them to cater for the practical issues described above. 


In staking each bet you should:


"Bet to COLLECT 4% of your bankroll based on the price you receive from the market."


The first key point is the concept of your bankroll. It's not the amount you have for betting that day... it's total amount of capital you have for betting.


If you don't have a specific betting bankroll put aside and tend to draw funds from your wage or savings to bet each week, then you still need to think about how much you can theoretically draw over a year as a betting bank. Allocate an amount in your mind that is realistic, even if you don't have that entire amount right now.


To make the maths simple I will use an example of a $10,000 betting bank. 


Each bet you make will therefore be to collect $400 (4% of $10,000) based on the price you receive from the market (or your best estimation of the price if betting top fluctuation.)


Bet Size Examples 


  • Horse is $2.00 in the market: your stake = $200 (400 / 2)
  • Horse is $3.50 in the market: your stake =$114 (400 / 3.5)
  • Horse is $4.00 in the market: your stake = $100 (400 / 4)
  • Horse is $8.00 in the market: your stake = $50 (400 / 8)
  • Horse is $20.00 in the market: your stake =$20 (400 / 20)


If you are backing multiple horses in a race then the maths doesn't change. You simply calculate each bet size as an individual.


This approach is easy to understand, practical to apply and takes away any external influences on your staking decisions.


Most importantly it maximises the growth of your bankroll, while keeping a moderate level of risk and individual bet sizes that most punters should be comfortable with, especially at shorter odds.

Another observation you might have made is that your bet sizes are proportional to your winning chance. A $2.00 chance is twice as likely to win as a $4 chance and your bet size using this method is twice as much. That's why it's called Proportional Betting. 


In reference to the Kelly Criterion, this approach results in an average bet size somewhere in the 25% to 33% range of "full Kelly" I mentioned above, assuming an edge in the 7% to 10% POT range.

Where your average bet size falls in that 25% to 33% Kelly range using this approach will depend firstly on the odds mix of your bets and secondly how your actual profit on turnover relates to the balanced 7%-10% assumption I've made. Overall though your average bet size will be somewhere in that range, or just below, which is perfect. 


A Key Point


It's important at this time to highlight that you are using the market price to determine your stake size, not your own assessed price. The 4% collect target already includes a factor for the notion that each bet you make has a profit edge (the 7% to 10% edge I mentioned above.)


Using your rated price moves you into dangerous territory in so far as your ability to precisely know the real chance of each horse, and therefore your real advantage. It's far better to assume a 7% to 10% edge than risk going the other way and staking far too much because you are routinely overestimating a horses true winning chance vs the market.


Think of it this way, if every horse you priced at $3.00 that was available at $4.50 in the market was in fact closer to a $3 chance as you assessed, then you would be making 50% profit on turnover from those bets. Rating a horse at $2.50 and backing it at $3.20 might be common occurrence for you, but that would suggest you are making 28% profit on turnover from those bets.


The key point is that it's very easy to think your price is right, but across a large number of bets the actual profit on turnover achieved reveals a much lower edge, even if still profitable. 


For that reason it's far more astute to assume a constant and realistic profit edge and then use the market price to collect the 4% of your bank. 


Stepping Outside the Boundaries


There may be times that you feel very confident the market is making a big mistake, resulting in a far greater advantage than the normal.


In such cases I certainly modify my collect target so I am fully capitalising on that mistake. I might aim to collect somewhere between 6% and 10% of my bank.


Having the intuition to make the most of your very best value opportunities is key part of successful punting. However it does require very good judgement and a clear case in your mind as to why the market is making a much larger mistake than normal. It's not something you should do without careful consideration. 



Increasing or Decreasing Your Target


A natural flow on question from my recommended approach is "a what point should I increase or decrease my target?"  The right answer depends entirely on what you are comfortable with. 


Technically you can adjust your target after every bet. If your first bet at $4.00 wins, then your bankroll becomes $10,300 and your new collect target is $412 (4% of $10,300). This will give you the optimal result in the long-term.


If the practicalities of adjusting after every bet is too much trouble then you can alternatively recalculate at the end of each day, or set markers that make you recalculate when your bank increases or decreases to a certain level.


For example, you might recalculate when your bank increases or decreases by 20%. So if your bank increases to $12,000 then your new collect target would become $480. If your bank fell to $9,000 then your new collect target would be $360. 


The most important thing is that you feel comfortable with the level you are betting at. If you're bank has grown rapidly to $20,000 but you still don't feel comfortable betting to collect $800 then don't scale it down a bit. If you continue to enjoy success then your comfort level will increase over time, don't rush it.


At the same time, if you start going through a losing run and feel uncomfortable with the bet sizes your are making, then reduce your target to 3.5% or 3% of your bank. The difference is often minor, but enough to make you feel more at ease and that is the single most important thing you can do, especially during losing runs. Once things turn around for the better, that profit comes back much faster than you imagine. 



Closing Thoughts


Always remember that the way you stake your bets is just as important as the horses you back. Using a proportional betting approach like I have outlined strikes the right balance between optimising your profit growth, while maintaining a risk level you can feel comfortable with. 

Just as importantly, it helps to provide structure around your betting and eliminate the need for you to make subjective decisions on how much to bet, which as we all know can be influenced by a whole range of undesirable factors.

The end result is that you will be able to bet with much more purpose and ultimately make more profit!


Bet Smarter!

Daniel

Comments (201) -

  • Roman Kozlovski

    8/31/2015 10:58:40 PM |

    Hi Daniel,
    There's no disputing that Proportional Betting is the best way to bet. However the assumption you have made about 7-10% POT is unrealistic for most punters for starters but I would not dispute that 4% is a fair percentage to try and win if 7-10% is being met. I would suspect most keen punters when careful with prices versus chance versus patience could make a POT but in today's tight market I doubt 7-10% for any long length of time (over 1000 bets). Would it be unreasonable to suggest 2% POT and set the 4% objective to 1%? It is a bit like walking through treacle but more realistic for the punter seriously having a go allowing for mistakes to occur in the process of deciding selections.

  • Daniel

    9/8/2015 11:40:14 AM |

    Hi Roman,

    Long time... glad you are still keeping an eye in.

    I don't think the 7% to 10% POT is unrealistic, not from personal experience over the last decade anyway, but I do agree that many may not achieve that. The impact of a lower real POT in relation to staking would be a marginally higher risk level (draw down). The risk threshold I set in the calculation process was quite conservative, so a slightly ambitious POT assumption wouldn't be disastrous. I certainly agree though that it may still be beyond the comfort level of some punters. The reality is that many would be well suited to what you suggest, especially in their early years of building experience.

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    12/11/2015 11:26:57 PM |

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  • Simon Johnson

    5/20/2018 6:50:59 PM |

    Hi Daniel
    I have always grown up with the belief that when betting to your own markets and betting the overs. The staking is always to do with the price you have it assesses. Ie a bank for the race is $1000, you have Horse A at $2 and can get better you would have $500 at the price higher than $2. In this scenario you would be betting all overs. Are you suggesting that this way of staking is becoming obsolete due to the markets being too "accurate"? Also, what I find is that you can still lose on a day if you have 1 or 2 "strip out" races. And there is significantly high turnover for positive returns.

    Any guidance would certainly help.

    Kind Regrards
    Simon Johnson

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