The Sharp Plays Index – Past, Present & Future

When I started the index (link to the index is in the website menu or you can click here) it was met with a lot of reservation from those who follow me. I get it, why would a financial market style index be able to predict the momentum of the public and/or the sharp/value in the sports betting markets? To me the connection was simple. In the market for a stock you have two sides. You have the buyers and sellers. The success of one side versus the other is what makes a stock price move. If buyers are stronger, the price goes up. If sellers are stronger, the price goes down. Simple! For the price to trend up it has to stop going down and turn up. If it doesn’t, then trending up isn’t possible. For the price to trend down it has to stop going up and start declining. If not, the price cannot go down. The same is true in betting. For the value (sharp) side to get hot, the opposite side (public/anti-value) has to get cold and vice versa. Seemed pretty clear to me that charting the performance of who is winning in the betting markets (sharps/public) would be easy. Rather, how to use the chart/data became the question.

Most every type of betting involves runs/streaks. If you play blackjack, you run hot and cold. If you bet horses, you have great weeks and not so great weeks. In sports betting, obviously sharps don’t win two games, lose one, win two, lose one, etc. It’s more like win 4, lose 3, win 6, lose 4, etc. Little runs back and forth. Bettors, both good and bad, go on hot streaks and cold streaks. We of course know all about the public’s cold streaks. While the public is a long term loser, they can go on some amazingly good hot streaks too! The current MLB season with regard to side betting can be a good example of a public hot steak. The public needs those streaks otherwise they would lose interest in betting! The difference between the public streaks and the sharp streaks is that usually the sharps have longer hot streaks than they have cold streaks. The public often has it the other way around.

Have you ever played the game of Craps? As a pass line bettor, when a craps table gets hot, you want to jump on. When it is cold you want to stay away or play the Don’t Pass. Wouldn’t it be great to have a tool to tell you when the table was getting hot, or cold in craps? Craps is technically a random game. As such an index doesn’t really work for craps but sports betting is not random. Betting sports is a game of skill, much like investing. Betting sports is also cyclical, much like investing. Often at the start of the season the sharps have more success than the public. Then there is undoubtedly that month or so where the public is on fire and the sharps give some back. In research with some others in the industry, I have found periods each year where sharp action consistently under-performed and over-performed. Those key months were February, July and November as the most consistent for public success. The best months for sharps?? I found those to consistently be September through mid-October, December, March and May. I used monthly betting data from two books I work with and broke it down by sharp/public money. Then I did an analysis since 2001 on the data to see which months were the most frequently profitable for sharps and the public. Above are the results of that analysis.

With all this in mind I thought, if there were months where the public or the sharps tended to perform better, would it be possible to break it down further to find when that momentum changes from one side to another? If you could see when the public was starting to get hot, why not take a pass from the sharp/value side? If you could see when the sharp/value side was getting hot, why not jump on for the ride? More often than not, one side (sharp/public) will be trending. So, if you could see when the market turns from one side to the other, wouldn’t that be a useful tool? The goal of the index is simply to assess performance of both sides in the market (sharp & public). When sharp performance is hot and then starts to turn south one day, there’s the canary in the coal mine to say the amazing run is losing momentum. Neither the sharps nor the public will run one way forever. Eventually there is a turn. The sharp turn to the public starts with the first down day. It is then confirmed by the second. In essence, that is all the index does! It let’s you know (and see visually in the form of a chart) when one side or the other is winning and lets you know (and see) who has the momentum.

For me to have five winning days, I first need to have one. So, if I had three losing days and one winning day, technically the losing streak I was having is over. It wouldn’t guarantee a 5-10 day winning streak but it would say that things have turned from the previous trend and perhaps a new trend is starting. What the index does is show who is hot and lets us know who is hot based on performance of their dollars in action. Since betting tends to operate in streaks, if you see a streak change, why not ride the next one? Sometimes it will be a one day streak (not really a streak) and sometimes the new streak will run for days at a time. You never really know how long the next run will be when one run stops… it’s why the index isn’t perfect. Nothing will predict the future perfectly. However if you were riding the sharps and they pulled off a strong 8 day run and then the index turned down one day, signifying their first losing day, why not pass? Clearly something has changed so instead of taking the risk, just take a day off and see what happens. If you do and that is the start of the next public run, you saved money. If you do and the sharps only had that one down day and got hot again, you can jump back on. Passing up a win is always better than being in action for a loss.

There will also be times when the sharps and public are grinding (up one day, down the next). When you see that sort of pattern, why not just step away until you see one side or the other put two back to back trend days together. Again, the index isn’t going to perfectly predict nor will it create the runs. Like any betting tool it is just that… a tool to use in your overall analysis of a bet. The catch is that just because one run has ended doesn’t mean it is the start of a new run. It just means the previous run is over and you should not be betting like it is still going on!

How do you use the chart? The most direct way is simply to see where the index line is. If the index is above the 5 day moving average and the previous day was an up day, then the sharps/value would be in control. When the index is below the moving average and the previous day was a down day, it says that the public is in control. Along with looking at where the index is with regard to the moving average, the chart also has extremes. I initially thought those extremes would be 0-100 however it appears the market is more in the 50-100 range. When the sharps get real hot the index will often get to 90-100. When the public gets real hot the index will decline to 60-50. Back to the fact that neither side will run forever, often when the index gets to those extremes…60-50 and 90-100, it is only a matter of time before the trend comes to an end. It has worked that way every time with the index so far.

When the index has been in the 90-100 range, it has only been there for, at most, two days before turning south. We could surmise that when the index gets to 90+, it is time to jump off the sharp/value train. On the other side, every time the index hit the 55 area on one day, it bounced the next day. Again, three months is a small sample size but it is interesting how well the index has predicted movement. Religious followers of the index like myself and many of those on Twitter can confirm it has an uncanny ability of predicting the day ahead. We have seen algorithms fail more frequently when the index is declining, like this past weekend. We have seen sharps getting killed when the index is declining. Conversely, we have seen some amazing runs from the sharps and the algorithms, along with fading the public when the index was in an uptrend. To see this in practice, if you visit the TSP Index page, you can see the index showed a decline when it was updated Friday morning (showing Thursday’s action). Well, I don’t have to tell you that sharp action was awful on Friday, Saturday and Sunday. At the same time the public was quite hot including their 21-7-2 record in MLB yesterday. We can say the index is voodoo however it would have had you out of the sharp/value side starting on Friday… and it would have been spot on! Not to mention with regard to the public & the index… how often did we see Poison and Freeze on FIRE when the index was declining and how consistently did they lose when the index was going up, even on the Bruins? As the epitome of public bettors, it was an interesting correlation to watch in action…index movement to public bettor performance.

In conclusion, I realize the thought of an index helping to predict success or failure of the sharp side/public side in the sports betting market seems wild. However the actual performance and predictability of the index cannot be denied. You have been able to see the results for yourself since I began posting it in March. First thing every morning I update the index and let you know what it means for the day ahead. How would I sum up using the index? If it is trending up, especially when above the 5 day moving average, I would advise following the sharps and value betting (things like algorithms). I would also advise fading the public. When the index is trending down, technically it would say to fade the sharps and follow the public. I personally choose to pass in downtrends.

The future of the index looks very bright based on its performance up to this point. My eventual goal, in the coming weeks, is to assess the correlations between the index and the success of the algorithm selections. Once I do then the index would become a component of every algorithm I use. The index value would then raise the quality requirement in downtrends for an algorithm play to qualify as official. The index would also relax the value requirement a little in up-trends. It should ensure only the best of plays, if any, from the algorithms when the index is declining. When the index is going up, it would allow the algorithms to be a little looser with the selections knowing the momentum is on the side of value. It’ll be an interesting test in the weeks ahead. I hope you’ll enjoy following as much as I enjoy doing it!

Good luck in your action!
~ The Sharp Plays