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Does Weight Of Money Trading work?
It’s refreshing to see a large collection of articles on trading all in one place. Gavin has really put a nice site together, and I think the trading section is really going to turn into a hub for the latest information and strategies on trading - the main reason being that the people who post are naturally peddlers of a trading system of some sort - so I guess we make for a pretty good bunch to be trading articles back and forth. That competitive dynamic should really help push the site out.
Speaking of dynamics, there has recently been a lot of talk on the article posts about weight of the money trading and whether it works or not. Several people have put forward different ideas as to whether they think it is still a viable indicator for trading with.
Well, here’s my two cents. I have said what I am about to say a million times over, so if you think I am wrong please do let me know below.
Anyway, here’s what I think in a nutshell.
Does Weight of the Money trading work? Yes and no.
Fundamentally, the markets HAVE to be governed by the WOM dynamic. It’s just that simple and that’s our starting point. If we imagine a million people wanting to back Chelsea and only punter wanting to lay them, the price will fall as the backers accept lower and lower prices. What makes the dynamic particularly striking is that it does not run on cold hard logic; it runs on emotion: “oh, that guy is in front of me with his £2000 bet.. I need to get matched! Gotta jump in front of him so I can get on, will need to move my price forward quick!” Note the worrisome tone.
This emotion causes a short-term panic as one punter jumps over the next and so forth. In other words, a microcosm of the same thing we have seen on a much bigger scale in the stock market - the tulip bubble, the south sea bubble, the dot com bust, etc etc. As always, emotions and social proof govern the trends.
So in a nutshell, yes, it is fundamentally the WOM that drives prices. It has to be, and it is the same in any market worldwide. It’s called supply and demand.
However, the problem is that the weight of the money is not always apparent for several reasons. Remember, simply knowing supply and demand doesn’t allow you to choose and market to your niche correctly. You need indicators, and they aren’t always apparent with the WOM dynamic
The problems, why WOM isn’t a black and white issue any more:
1. Market manipulators - as the guy who runs betting exchange traders noted in his own post, these guys will place fluff orders with no intention of ever getting filled. They want to manipulate the dynamic so that us traders follow them, causing a sudden price shift in one direction. That’s when they match their real bet, and remove their fluff order, causing the price to swing back sharply as the traders react to the trend by forcing it in another direction. This is especially painful if you have bought high. You can see this process happens when a genuine order for £40,000 (or some other insane amount) comes in and the punter chases the price upwards (or downwards if he wants to back it). Often when he is gone, the price will swing back.
2. Big amounts attract big amounts - although I have never been a big punter (straight backer or layer), I imagine that if I was, I would I have got stung many times by sticking my order in for £2000 and watching traders jump in front of me, costing me money as I chase my price upwards. With this in mind it would make more sense for me to wait for a big order to come in on the side I want to get matched on, and take it as soon as it happens (or indeed wait for the price to move in my favour). So, in other words, any big amount on one side is likely to attract bigger amounts on other other side. I do not have firm evidence for this, it is purely anecdotal, but I certainly believe it is the truth.
3. There are still people who aren’t trading - of course, many punters on Betfair are straight backers and layers. These guys have no respect for the WOM dynamic, and their money flies in from every direction. With the amount of tipping services and backing / laying systems out there, money flies in all over the place, disrupting the perfect WOM flow.
4. Randomness - this is the main reason that it is not easy to spot the WOM on the most popular markets. On an average British horse race, you can get thousands flying in on either side - in a few seconds. Money comes and goes so quickly, it’s hard to know what’s what. You need to be fast, skilled, experienced, have a big bank, and have the right trading software if you expect to trade on British horse races.
Why do you need a big bank?
Because, as you may now know, WOM trading is difficult, so you want to make very few trades - only when you are 100% sure. If you can back or lay with a £2,000 bank once per race, you can come out with a very solid profit for the day.
Not so for punters without the large bank (and even then ignoring the skill and the other factors).
So, in summary, yes WOM does still work but on the larger markets (read: British horse racing), the competition has been stepped up a notch or six.
So all you newbies - don’t expect a free lunch in.
The massive amount of money has created a complex web of randomness that makes it much harder to take one tick per race consistently. But it is doable - I know people who do it for a living.
And for those of us who don’t have the expertise, the skill, and the £2,000 bank?
Well, I hate to segway into a sales pitch, but that’s what my product, Easy Trader Pro, is about - finding ways to make WOM workable for those of us who havent nailed it yet.
For those of you who do need to get this trading thing work, and feel like the WOM dynamic is overwhelming, I have the solution.
For those of you who don’t want to invest in my system? One piece of advice: look outside the traditional markets using the same principles.
For more information about how to trade profitably, and with a bank as small as £50, head to:
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