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Understanding the Importance of Drawdown Betting

Did you know that betting in sports makes up 30 to 40% of the total revenue generated by the gambling industry worldwide?

How familiar are you with drawdown betting in sports betting? The term is most commonly heard in the money markets and investment groups because it is critical in determining whether an investment is viable. Furthermore, it is a key component of sound fund management in sports betting.

Drawdown is the highest limit that a bettor’s fund can fall during the course of using a betting system in the context of sports betting.

For example, correctly estimating the drawdown during your betting system implementation eliminates the need to adjust the bet size. As a result, betting can continue according to the initial bets plan without the gambler having to discontinue the betting system abruptly.

Are you starting out in sports betting? First, you should learn about drawdown betting. Here’s how it can affect your bets.

What Is Drawdown in Betting?

Simply put, you use a drawdown to gauge the riskiness associated with a particular financial or betting strategy. You refer to an investment’s peak-to-trough (percentage) decline as drawdown, and its maximum drawdown is the largest drawdown before a new peak has been reached.

The potential for volatility increases in direct proportion to the size of the drawdown figure and vice versa.

In the context of gambling, however, it is essentially a measurement of the most significant loss we anticipate incurring due to adhering to a betting strategy over an extended period. 

Maximum Drawdown

There is also something called a maximum drawdown. A maximum drawdown refers to the largest gap between the maximum and minimum points of the variable in question when there are no intermediate points in between.

Drawdown size depends on a variety of variables. For example, if profit expectations are higher, the maximum drawdown is expected to be smaller.

That being said, losing streaks are an unavoidable part of betting systems, no matter how hard we try to avoid them. And it is true that not all losing streaks are the same.

Using a particular betting system helps to know ahead of time what losing streaks to expect. But, what can we expect in terms of the ride’s turbulence? This is where max drawdown enters the scene?

Drawdown Sports Betting and How It Is Calculated?

Determining a betting system’s drawdown isn’t too difficult, provided we have access to relevant historical data.

We could also consider the maximum drawdown to equate with the most significant drop in betting funds that a gambler would truthfully be prepared to accept.

For example, let’s consider the following:

After it has been established that a winning system was developed, we research the system’s historical results. For example, a player who started with $10,000 funds in 2015 and applied the specific betting system would have ended the year with $3,000 more in their pocket than they started with.

  • If you had started with a capital investment of 13,000 dollars in 2016, the total amount that you would have had at the end of the year would have been 17,000 dollars
  • In 2017, it would have increased to 22,000 dollars; and so on

However, if we were to conduct a more in-depth analysis of the results throughout 2015, we would notice that even though our investment reached $12,000 on one occasion before the end of the year, it also dropped to $10,500 within a month.

  • This discrepancy amounted to $1,500
  • Despite that setback, it has made a speedy recovery and closed the year with a profit
  • In 2016, our equity reached $18,000
  • However, after further growth to $17,000, it dropped back down to $15,000
  • This was followed by a profitable level that was maintained until year-end
  • This was a $3,000 difference
  • Later in 2019, our total balance managed to reach $34,000, but it dropped to $31,500 before going back up
  • The difference over a year is $2,500

So, the most money we had to take out of our betting funds was $3,000 in 2016.

The Importance of Drawdown Betting

For many betting strategies to work, it’s important to bet consistently. If you bet too much, you might feel like you need to decrease your bets after a string of losses.

The result is that any subsequent upswings will help you less. Alternatively, you’ll go bust before a long-term profitable system has a chance to keep growing.

Choosing a Betting Method That Works For You

This draws us to the first reason why it’s good to know about max drawdown. It lets us bet the right amount.

It is vital to choose a betting system and stick to it. By knowing in advance how volatile an approach is likely to be, we can design and execute a good betting strategy that strikes the right balance between making the most money and not going bankrupt.

Defined Maximum Drawdown Value

max drawdown in betting

Another significant benefit of having a defined maximum drawdown value is that it can be a red flag.

Take, for instance, the case where we are employing a wagering strategy that forecasts a maximum drawdown of 50 units based on data analysis spanning multiple years. Despite this, and much to our dismay, we have recently suffered a downswing of 60 units. How is it even possible?

It is not out of the question that this is merely an anomaly in the sequence of results and that everything will eventually return to its normal state. After all, it is doubtful that what occurred in the past will be a perfect predictor of what will happen in the future.

However, we cannot rule out the chance that what was once a successful method is no longer. Perhaps there are:

  • New factors involved that are affecting the effectiveness of your choice methodology
  • Maybe the lucrative aspects of your scheme have now been effectively marketed

In such a case, it may be time to reconsider your betting system.

However, how do you tell the difference? Do you have the fortitude to keep going through this? You can draw a new set of straws and begin from scratch if you prefer.

As a general rule of thumb, we should stop trading when the drawdown exceeds 1.5 times the anticipated amount. You should only resume trading if you are confident the system is working as expected at that point. After a 60-unit downswing, you would have to stop to think about your maximum drawdown system. 

Max Drawdown’s Psychological Impact

Choosing a good betting fund and strategy is not enough to benefit from knowing the maximum drawdown. Understanding a system’s fluctuations can improve our psychological approach to betting and our wagers’ outcomes.

Losing streaks are often nerve-racking and lead us to do things like question how we are performing. It’s conceivable that it could make you twist a winning strategy around by making minor adjustments, or you could keep chasing your losses, which is a recipe for disaster.

To put it another way, it is a great deal simpler to remain calm when we are successful than when we are in the middle of a losing streak. Therefore, it is essential to succeed in any financial investment program to keep one’s mind clear and one’s attention in the long run.

How to Deal With the Effects of Drawdowns

Every successful bettor faces drawdowns. Naturally, this makes them doubt their skills. However, managing drawdowns may be the biggest challenge.

Professional sports bettors strive to remove feelings from their betting process. However, their depth of experience has developed a sense of apathy for both wins and losses. One must have faith in one’s capacity to attain long-term results to achieve this emotional distance.

Even many beginner players understand that rash efforts to try and win after a loss are doomed to fail. However, the common misconception that you should raise your bets after an unbeaten run is incorrect.

At the same time, if you manage your money smartly, using one of the well-known methods, the consequences of holding this point of view may be less disastrous.

Both of the preceding are examples of wrongheaded players who overlook the random elements of revenues and profits. There have been reports of players quadrupling their earnings after a series of bets, only just about to lose everything after the next bet.

Bettors who think a lot acknowledge that much of betting is luck. They won’t twist cause-and-effect. Instead of assuming they caused the results, they’ll research and analyze their strategy.

You will be capable of dealing with the uncertainty of the world of sports betting more quickly if you are free of the emotional responses that involve winning or losing money and only concentrate on the expected value of the bet.

Place Your Bets!

If you don’t know what you’re doing, sports betting is an easy way of losing a lot of money in a short period. The answer to improving at sports betting is knowledge of drawdown betting.

With so many sports betting resources on the web, it can be challenging to know who to listen to and ignore.

Are you looking to improve your chances of winning at sports betting and familiarize yourself with the various betting models and strategies? Then, enroll in this free course; it will shed new light on everything about betting!

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