What Can We Learn About Binary Options from Sports Betting?
I often talk about Forex trading while discussing binary options, because Forex and binary options are two closely related worlds. Another closely related field which I have not yet discussed is sports betting. The online revolution which has made trading in FX and binary options accessible to the average person has also made sports wagering easier to participate in as well, and it has exploded in popularity in recent years as a result, just like trading.
What do sports betting and binary options have in common? A lot of things. While sports betting is obviously more readily associated with gambling and not so much with investing, the two activities are really quite similar:
- They are both activities which entail a high degree of risk.
- They both can yield a high reward.
- Both are games of chance where most players will ultimately lose.
- The tiny percentage who win at either have an edge that others do not.
- They are both “gambling” by default, but you do not have to treat either that way.
- If you do approach either sports betting or binary options with a clear head and a sound strategy, you can invest in either for repeated success.
- You can ultimately go on to trade or bet for a living.
In fact, when you choose “up” or “down” while trading a binary option, if you think about it, you really are placing a bet that the market is going to do one of two things. Likewise, if you are participating in a One Touch trade, you are placing a wager that price will reach a certain trigger value. If you win your bet in either case, you win the payout. If you lose your wager, you lose your investment—just like with any other form of gambling.
In sports betting, we talk about “the betting public” and “the sharps.” The “betting public” refers to around 99% of everyone in the world who bets on sports. The public is not where you want to be if you want to be a winner. The “sharps” on the other hand are the professional gamblers who make it to the top. They win again and again and have a reliable track record. They will go on to win in the future. If you are a sports gambler, you want to become one of the sharps, and leave the public down in the dust.
The same goes for binary options, even though we do not have names for these distinct groups of people. They do exist. And just as 99% of online bettors are members of the betting public and not sharps, 99% of binary options traders are members of the “trading public” and will ultimately lose their trades and their bankrolls. You want to be a binary options sharp. So how do you do that? What can sports betting sharps teach you? And what can you learn about behaviors you should avoid from the betting public?
The Sports Betting Public
Let’s talk about the typical habits of the sports betting public:
- The sports betting public typically likes to wager on the “favorites.” If you are not familiar with sports betting, the “favorite” is simply the team or player that is favored to win a match or a game. The betting public usually steers clear of the underdogs—the teams or players that are not favored to win.
- The betting public also assumes that a winner on the field will also be a winning bet. They pay little attention to the points spread, a feature of sports wagering which can actually have just as much of an impact on whether they will win or lose the bet. In other words, they do not necessarily notice whether or not they are getting a good deal.
- News is a major influencer on the betting public. If a particular team or player is in the news a lot, the betting public may make their decisions based off of what happens, whether it is positive news or negative news.
- The public also prefers to bet on high profile games and ignore low profile games. They feel like they know more about the high profile games, and they do not put a lot of effort or research into learning anything in-depth about the sport they are betting on or the teams they are wagering on.
- Emotion has a big sway on the betting public. Members of the betting public love to stand behind their favorite teams. They cheer them on with their money, allowing sentiment to drive their bets.
The Binary Options “Betting Public”
Now let’s compare that to the typical behavior of the average casual binary options trader:
- Just as the typical member of the sports betting public tends to wager on “favorites,” a casual binary options investor may choose to enter into a particular investment because they heard it was the smart thing to do. Maybe they see other traders doing it on their social trading apps, or maybe they heard a famous investor mention a certain stock or commodity on television. Either way, they allow the choices of other traders to drive their own decisions. They believe they are following the “sharps,” when often they are just trading with the public.
- Casual investors do not necessarily recognize a good deal either. They may be tempted by trades which offer low payouts in relation to the out-of-money reward, and may not recognize what a sizeable gap there is in their broker’s favor. They also may not pay close attention to the expiry time for a trade, and may not realize that features like these which are a part of the setup are as much a determinant for whether they win or lose as whether they pick the right direction or not when they call or put.
- News headlines have a big influence on casual binary options investors as well. This is not to say that some of the “sharp” investors do not trade the news—they do—but these people are economic experts. If you are casually trying to trade the news, you will probably lose, and all while thinking you are really smart.
- Members of the binary options “public” will often ignore low profile assets and stick with assets they have heard of, whether there is a good technical reason or not. If they do trade low profile assets, it is because they think they are “exotic.”
- Casual traders are very much at the mercy of their emotions. They often bet with their gut instinct and believe their intuition actually can tell them whether a trade will be a winner or not. They allow fear, greed, hope and despair to muddy their decision-making.
As you can see, the sports betting public and the pool of casual investors in binary options have a lot in common. They have the exact same personalities, and a fair few of them probably actually are members of both groups. You do not want to be in this pile! Also note that a lot of members of the public think they are really sharps, or may even want to be—but they still think like members of the public, and make their decisions the same way.
Now let’s talk about the sharps!
Sports Betting Sharps
What do sports betting sharps know that members of the public do not? How do they make their decisions differently? What allows them to win time and time again while members of the betting public lose money?
- Sports betting sharps are much more aware of points spreads and money lines than members of the public. In other words, they realize that they need to shop around for a good deal on their wager or they could lose, even if they are right about what is going to happen on the field.
- Betting sharps know they must not only look at historical data in order to hypothesize about future performance, but understand the distribution pattern of recent events, as well as why a team has been winning or losing. They do not shy away from in-depth research and analysis, and they use a consistent method to decide when to enter a bet and when to avoid jumping in.
- Professional sports bettors avoid complex types of wagers and prefer simple wagers. They rarely get involved with parlays and teasers, and keep betting as straightforward as possible. While they may be attracted by high payouts, they also do what they can to mitigate their risk. They would rather make money regularly in small increments and gradually build up their accounts than risk it all on a bet they are extremely unlikely to win in the hopes of striking the jackpot.
- Sharps never oversimplify reality. They do not base their decisions on someone else’s research, but neither do they look at the public and just bet in the opposite direction (a common strategy which is, ironically, used by members of the public). They do the work themselves and understand their own betting decisions. They know there is no shortcut to riches.
Binary Options “Sharps”
Now let us see how the choices made by professional binary options traders (and those who are on their way) compare to the choices made by sports betting sharps. Are you a “sharp” binary options trader? You may be, if you recognize yourself in the following bullet points:
- A “sharp” binary options investor never assumes that he or she will win simply by picking the right direction of movement for a trade. There is so much more that goes into it than that. You could for example pick the right direction, but the wrong expiry time. Smart investors make sure that the terms of the trade will make it a likely win, just as betting sharps look for a good money line or points spread.
- Professional binary options traders not only analyze data (through technical analysis, fundamental analysis or price action), but understand why their strategies work. They use a consistent method to generate reliable results. They do not make random decisions. They know that random decisions result in random wins and losses, and over time, more losses than wins.
- As a binary options trader, there are a number of different types of trades available to you. Most of them are relatively simple and straight forward: High/Low, One Touch, Boundary, and so forth. But there are complex alternatives like Ladder trades available as well. Ladder trades can work out nicely, but they are complicated and the likelihood of a high payout is fairly low. It is much more likely that you will have partial profits or losses. Most professional investors will stick with simple, straightforward trades and avoid these more complex trades, just as most professional gamblers will stick with simple sports bets.
- Professional traders, like professional sports bettors, do not think they can succeed simply by mirroring other traders or doing the opposite of what the public is doing. They may use trade alerts or take advice from others, but they will always do the necessary work to develop and utilize their own strategies. They know they must depend on themselves for their successes, and hold themselves accountable for their failures.
Even though we may not use phrases like “sharps” and “the public” when we talk about binary options, these two groups definitely exist, and almost all binary options traders are members of the public. Your goal, if you want to succeed over the long run and maybe even trade for a living, is to become a sharp. The best way to do that is to think like a sharp and act like a sharp. Make decisions based on your own research and analysis, and recognize that there are no shortcuts to success. It is a challenging way to make a living, but if you are smart and determined, you can do it.