Variance in Betting
Dealing with short term variance is a key part of a successful betting strategy. Sports betting, especially, has a very high variance compared to stock trading for example. This is the main why many bettors give up their betting strategies as they lose confidence after a losing streak.
There are always going to be ups and downs when gambling, so it is important not to panic when seemingly stuck in a run of losses. Winners are likely to be just around the corner as variance should even itself out in the long run if you have value on your side.
So what exactly is variance – and is there anything that can be done to plan ahead for it?
What is variance in betting?
When referring to betting, variance – a term that comes from statistics – essentially means the expectation of the squared deviation of a variable that is random from its mean. To put this into more straightforward language, variance is how a random set of numbers might be spread out from the average.
When a large volume of bets is placed, results should show the impact of your betting skill alongside the natural luck that inevitably plays a part when gambling. Variance is in play in the short term, though, so it is important to be aware of this factor. The more bets that you place the less the downswings will be as long as you bet with value. So if your expected value is positive you should place as many bets as you can.
Betting strategies should include keeping variance in mind as it is always possible to go on a bad run. Successful strategies will see these sequences turn around sooner rather than later. That’s why you should never trust or discard a tipster based on one month’s results for example. In order to make a decision, you should have a large set of bets on your hand as the luck factor is eliminated that way.
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An example of variance
To explain how variance works in betting, let’s use the example of a toss of a coin.
The chance of the coin landing on heads is 50 percent, the same chance as for tails.
But due to the fact that the result of one coin toss does not have any impact on the next, this does not mean 100 coin tosses would result in 50 heads and 50 tails.
It could end up with 65 heads and 35 tails or the other way around – this is variance in action.
A run of 10 straight heads results does not mean the 11th flip is any more likely to end in tails.
Overcoming variance when betting
On paper, it should not be a problem to deal with variance as part of your betting strategy.
All you need to do is increase the number of bets you place, be careful in how you spread risk around to avoid going bust and keep to your expected winning percentage.
This is easier said than done, of course, as betting can be a very fickle business indeed.
You should be able to produce a baseline estimate of the minimum number of bets placed that should be winners, though. That allows you to plan ahead – if you place around 200 to 250 bets this should start to take variance out of the equation.
Managing risk with variance in mind
Risk is obviously inherent in gambling, but there are ways to minimize the impact of variance.
- As you have seen before, place as many bets as you can is the best option to eliminate the betting swings.
- Always betting the same stake or stick to the staking plan of your choice, as it is easy for gamblers to start chasing their losses when they get on a bad run. This is why bankroll management is so important.
- Another money management strategy that could be worth considering is a low Kelly stake sizing betting, which uses your expected win rate to decide the stake you place on a particular wager. There are plenty of online tools available to help with your calculations if you want to try the Kelly betting strategy out for yourself.
- Finally, you can avoid placing bets in high odds especially at the beginning of your betting journey as they can increase variance.
While the aim of the game is to steadily grow your bankroll, losing money will happen at times. This is due to variance, but those who take a long term view – being careful with the risks they take – should have nothing to be scared of.
The golden rule, of course, is that you should never bet more money than you can afford to lose.