This book is all about the ScoreMetrics Method and how it can help investors to diversify into truly zero correlation markets via the explosive growth in the sports wagering industry. Sports Trading Systems, the publisher brand of the ScoreMetrics Method that I developed, offers premium services that focus on both applying the systems we create into alerts for our members and also managing those systems as a portfolio approach to investing in sports trading. However, you don’t need to buy the premium services to leverage the knowledge in this book. My publisher would love for me to leave this section out of the book entirely, but the reality is that you can create these systems yourself, and in this book, I am going to teach you how to do that. I do need to give you some warnings first, however, as to jump right into this without knowing what you are in for would be a big mistake.
When I developed ScoreMetrics it was born out of painstaking development and research, and the systems within it were discovered and refined over 100s, even 1,000s of hours that not only I put into the process, but also my staff in the ScoreMetrics Lab.
However, I must admit that I love the R&D part of it. If you develop an idea and the barrier of entry to copy the idea is minimal, then not only is your idea shaky at best, but it will surely be copied by every Tom, Dick and Harry in short order. ScoreMetrics is anything but easy and simple. It’s a complex method with both logic and labor hours as its main barriers of entry. This will not only make it damn near impossible to be copied but also avoid the large betting houses from catching on and adjusting to what we are doing. I am going to show how to do this, but it comes with the caveat that you will need to spend an awful lot of late nights working on this if you want it to come out right and be successful (or as my publisher would want me to remind you, you can just buy the premium service and my team and I do all the work for you.)
It is also important to tell you that this method is not only about finding back-tested high-performing systems. A lot of the success of the program relies on the portfolio approach to applying the systems in a real trading environment. What I mean by this is that taking a single system you develop and putting real money towards it can come with very negative consequences. The reality is that even the best system may eventually turn on you, and having a heavy reliance on it to succeed long term is probably a lot closer to gambling than investing.
The important lesson here is that applying a portfolio approach can mitigate the reliance on the performance of a single system. Under a portfolio approach, you can have six systems and one can fail miserably, but if you have the proper non-emotional stop loss in place, and five other systems to offset your one failed system, then the overall portfolio performance still has a high probability of providing good returns. If you are going to try to develop your own systems using the method I am going to show you then you can’t leave this portfolio management part out of the process. And by portfolio management I mean a few things which I discuss in a bit more detail in a later section of the book, but here is a quick primer:
- The use of at least 5, but not more than 8, systems simultaneously to create a diversified return. This helps to remove individual system performance risk while remaining focused enough to still experience high returns.
- Pre-determined stop loss points for each system (at what loss point you abandon a system). Systems can and will fail, but if you implement stop losses then you limit the downside of those failures while removing emotional aspects of trading by deciding ahead of time at what point to stop yourself out of a system.
- Pre-determined unit allocation for each system based on a starting portfolio balance (for example, if you have a hypothetical 100 unit starting point then system #1 uses 4 units per trade, system #2 uses 6 units per trade, system #3 uses 2 units per trade, and so on). Understanding unit allocation modeling is critical in making sure you are optimizing the usage of your funds while not being too aggressive in your trading that you prematurely fail.