Weight of Money indicator

[Oddsfellow]

I have a bit of a share trading background so a natural progression was to trade the exchanges. Are there any others who dabble in trading?

I'm sure you will be aware of the principles involved but in case not visit here for a brief overview.
http://www.racingtrader.co.uk/trading1.html

Personally i use charting techniques developed in share price technichal analysis for trading signals, but by far the greatest used method is the weight of money indicator. There is a seperate thread on the forum where oddsagainst has highlighted a free program for betfair trading supplied free by a guy on the betfair forum. In the accompanying thread from that forum the following is written about WOM.

WOM = Weight Of Money indicator.
Add up the £'s available in the three boxes on the BACK side say £200 + £100 + £100 = £400
Add up the £'s available in the three boxes on the LAY side say £100 + £50 + £50 = £200
BACK divided by LAY total = 400/200 = 2
WOM figure would show indicating that there is twice as much money been layed on the horse i.e. availble to 'backers', as there has been backed on the horse i.e. available to 'layers'

(There was an example of how the indicator works here but i dont know how to put tables in yet so will come back to that).:think


I have been trying to follow any pattern with this indicator over recent days and just cannot find much correlation with price movement at all. Are there any traders out there who can direct me to where i could be going wrong.

One theory i have is that with the growth of trading software using the Betfair API more and more people are looking for and using the same indicators so the effectiveness of this indicator may have detoriated over time. Could be grasping at straws, but i just cant see how you can make decent money using it.

[Doc]

I have to be cynical here Oddsfellow.

I think chartists are ultimately doomed to failure - or at least to sub-optimal performance. Unless you have a 'why', then I'd be very suspicious of any attempt to predict future 'prices' based on current ones.

[Oddsfellow]

DOD,

The WOM is not a charting technique it’s just an indicator and actually involves no charting. The idea being that the weight of money will force the price in one direction or the other. Classic supply and demand theory really, more backers the price shortens, more layers the price lengthens. As I said the theory is good but I can’t get it to work.

As far as charting itself goes it may not be the definitive answer but I believe it does have its uses and people chart without realising it. Perhaps an example will illustrate better. A horse has been trading on the exchanges at between 5.0 and 5.4 all morning. As the betting opens on course money comes for it and the price moves in over time to 2.6 and rebounds back to level out at 3.0. The general betting view is that the horse is an on-course steamer and the move at the end was arb players laying it back to the market.

If I now plot this price movement on a chart it has three stages. The first stage is the trading range; this is when the horse is trading between 5.0 and 5.4. No real direction can be predicted by this but the longer this range goes on for the more significant a move outside that range becomes. As the price goes under 5.0 this is the second phase a breakout and we would be backing in anticipation of a price fall. The third and final stage of this little trading session is the bottoming out and rebound. Supply and demand markets always overshoot (overreact) before rebounding as the layers in this case get attracted back in by the lower price. Calling the bottom is very difficult so more than likely once it has rebounded we close the trade out to lock in profit

The example was exaggerated to show the trends and generally much smaller price movements are traded but hopefully you get the drift. .

So the way I see charting is just as a means of quantifying market movements. Steamer, drifter, money for it all morning, steady on the exchanges etc are all terms you can quantify with a chart. It took me a long time whilst trading shares to be convinced of its worth, and even now I still remain not wholly convinced but I think it does have its uses. Maybe.

[Doc]

aha - thats a good attempt at a 'why'!

I'd be much less cynical now

[jasper_77]

I've mentioned this in another area as well, but do you know of any tools that can be used to monitor this and provide alerts when a specified price is reached? I bet on quite a few races each day and most days find situations where I look at a price, can't work out which way it is going to go, come back an hour later and it has shortened from, say, 12.5 to 10.0. If I could get an alert when it reached, say, 11.5, I am sure that I could increase the average price that I achieve.