The Qualifying in Japan for the F1 Championship has just finished. Lewis Hamilton will start the race from the pole position having Kimi Raikonnen next to him, while Kovalainen and Alonso will be starting from the following positions. The second favorite for the F1 championship title, Felipe Massa, will start his engine from the 5th place. Here are the qualifying results for the F1 2008 Fuji Television Japanese Grand Prix.

Formula 1 Official Site

I have written about the drivers' odds in the Japanese Grand Prix and in the F1 Championship in a previous article. Back then (last weekend) Hamilton was the favorite to win the F1 championship at 1.35, Massa followed at 4.00 and then came Raikonnen and Kubica. Hamilton was also the favorite for the 2008 Japanese Grand Prix at 2.72, Massa was at 3.00 and Raikonnen close to 7.00.

So, after the qualifying stage we saw the following odds movements regarding F1 drivers:

Regarding the F1 championship betting market, Hamilton's odds moved from 1.35 to 1.27 (last matched), Massa's drifted a little to 4.20 and Raikonnen's moved from 170 to 310 although he was matched up to 1,000!

Regarding the Japanese betting market, Hamilton's odds inevitably shortened from 2.72 to 1.97, Massa's climbed from 3 to 9.40 while Raikonnen's moved from 7 to 4.00. Betfair traders who put their money on Hamilton are the big winners up to now, by backing at 2.72 and laying at 1.97 securing a satisfying profit before the tomorrow's race in Japan.

At this point I'd like to note a kind of unorthodox phenomenon for many bettors and traders. Raikonnen's odds shortened for the Japanese Grand Prix winner but they drifted for the F1 Championship! If we examine this situation a bit carefully, we won't have trouble to give a rational explanation for this fact. Raikonnen managed to be situated in the front line of tomorrow's starting grid (thus the odds shortening), however Hamilton's performance gives him every right to hope to keep the lead in the F1 championship race. In other words, if Hamilton hadn't performed so well along with Massa, Raikonnen's odds would probably shorten for F1 champion. Those results' combination led to this odds' movement. That was a very good example of the way the odds are affected not only from a personal performance, but also from the entire progress of an event.

In my latest post I had suggested that a good trading (in the long run) would be to back Hamilton for F1 championship's winner. Before even the race in Japan starts, we already see a shortening of his odds. Most probably you valuate this shortening a minor one, but moving from 1.35 to 1.27 means that by backing $100 at 1.35 and laying $106.30 at 1.27, we secure a safe profit of $6.30. Many betfair traders would think, ok, is that 6% enough to do all this analysis?

Of course not, I'll show you that we do that for more than 6%. We usually forget that in the event things don't turn out in favor of us, we have the opportunity to close our trading positions and minimize our losses. So, if Hamilton hadn't performed so well in the Japanese Qualifying (I repeat, qualifying, it's not even Sunday's race and we discuss about odds movement), his odds would have drifted. Are you so certain the odds would have drifted if he was to start the race from the 5th position and Massa from 4th? I am not. But let's say Massa won the pole position and Hamilton started from 20th position. The worst possible scenario. What would the Hamilton's odds be now? Would he still be the favorite for the F1 championship? I can't imagine he would lose his lead after just a qualifying stage while he is 7 points ahead from Massa. Let's say his odds drifted up to 2.00! By laying $70 at 2.00 we would lose $30 whoever driver won the Japanese Grand Prix and we would have closed our trading.

Think again for a moment; we assumed Hamilton's odds climbing from 1.35 to 2.00 (!!!) and we nevertheless we stand to lose $30 whatever the outcome from our initial $100 investment. If we scroll a bit higher, we will remember that we can win $6 in the present situation. That is a healthy 20% profit ($6 out of $30) instead of the 6% we thought initially. Our trading seems a lot more efficient now.

The conclusion of the above is how important placing a stop loss is. We always start trading by knowing exactly where and when we will close our positions if the market moves against us. If we don't do that, we risk losing our whole investment. Of course it's not just about assigning a stop loss, but also having the discipline to execute the order.

If the above scenario (1.35->2.00 and 1.35->1.27) happened 1000 times and we did the same thing each time (either $6 profit now, or $30 loss in the worst case scenario - that is a 1.20 bet in fact), then we would make a profit in the long run if the positive outcome happened more than 833 times. Now imagine you didn't close your position at 2.00 and let it run expecting a turnaround. Since you'd be risking $100, your profit would be 6% (that is a 1.06 bet in fact), so you needed 943 times Hamilton to perform well enough. You obviously understand the difference.

And if you say, "oh, ok, but if Hamilton managed to turn around the whole situation and ton the F1 title, his odds would shorten down to 1.01 and we would win $35 instead of $6", then what you would have accomplished was to gamble or bet (and not trade) in favor of Hamilton at 1.35 and hoped him to win the F1 championship more than 74%! Don't forget however you would have been risking $100 for 35% return, while now you risk $30 for 20% return and still have the chance to maneuver your trading positions in a lot of ways.