1) EPL hype is still obviously the main trend (but what happens next?)
Ahead of the EPL restart it is worth jogging our minds back to when we were preparing for the return of the Bundesliga.
Then, like now, traders were getting way over optimistic on a lot of Bundesliga players. Most of which didn’t meet the hopes and dreams of traders (there are only so many winners after all!).
And then it really wasn’t long before Bundesliga players apparently stopped being essential and became toxic. Just 2-3 weeks really.
With the EPL kicking off tonight we are in the early stage of a rerun of that cycle. The frenzy of EPL buying has been around for a while already.
What we have to be careful of though is assuming that trading around the EPL will play out exactly the same as the Bundesliga. It some ways it is similar but there are some subtle ways it will be different.
The break between EPL seasons is likely going to be shorter, with current expectations being an end in late July/early August and a restart in early or mid September.
That’s not going to inspire “end of season sell off” fear in the same as it has in the Bundesliga.
As I covered last week, that Bundesliga sell off in itself is silly and traders are costing themselves serious money by selling their Bundesliga assets very cheaply. It will likely not be long before people realise the huge value available in this area and return to it.
Good traders will be abusing the hell out of that over pessimism in the coming weeks to get strong Bundesliga players at a discount.
Clearly, there are lots of weak Bundesliga players that deserve to be sold and probably shouldn’t have risen in the first place. But burning prime assets for well under value is not smart. You’d have to be incredibly confident you have a better use for that cash. And chasing EPL players that have risen already is unlikely to be a better use.
So, I do not think we will see that same automatic exodus from all EPL players in a few weeks – I think people will retain confidence for some holds through into next season.
However. And it is a big however.
Good players who challenge for wins will tend to hold their value and increase in price.
The weak, overvalued stuff people have been buying in hope/ignorance will generally start getting found out over a few weeks of football. And they’ll drop.
With so many traders focused on the EPL we must minimise our odds of being caught holding a player too long who feels desirable now but will likely prove himself weak.
Once the masses realise their pumped player is actually garbage it is going to be very hard to shift them for anything like the blue button price.
Knowing when to sell is something lots of people struggle with. Selling something that has risen recently is psychologically hard but it’s exactly what needs to happen in a lot of cases.
Selling whilst people still feel a reason to buy is the only chance you have of getting a sell price close to that blue button price.
Scouting gives us the tools to do that because we know with a high degree of accuracy who is likely to do well and who is likely to fail.
The key thing for the next week or two is this. If you are holding popular but weak players you have to move them on before people realise they are weak, not after.
Depending on how weak a player is, that could be before a ball has even been kicked if they are really bad.
Something like Martinelli or Saka at Arsenal who I’ve picked on (deservedly) for being highly priced and weak. Don’t wait for the game because whilst any player can win it’s not likely for them.
In fact, checking the prices now you can see they are already dropping. Smarter traders will have bought in advance of the restart but will be aware they are weak and so are selling before the game. They don’t want to give the masses a chance to realise. Smart.
Other players like a Pepe or a Rashford – they have a question mark over their performance suitability but they are in with a chance. There is nothing wrong with monitoring them for a game or two. But if it looks average or worse – jump ship before most people figure it out.
The real quality you can be comfortable holding throughout provided you are happy to take them into next season. Bruno or potentially Loftus-Cheek or any players showing strength in the opening game or two. If they are looking good we may just be able to let them run for months and don’t even need to care if they drop.
The focus will be on the EPL but I would also apply this kind of thinking to La Liga and Serie A right now.
The time of automatic rises for hype alone will soon be over – as we enter the week in week out grind of football – players are going to have to start showing results.
Use Scouting and research to make sure you know who the winners or losers are likely to be – do not wait for matches to tell you – because by then everyone knows and it will be too late.
2) It’s getting to crunch time for lots of transfers/loans
One of things I’ve been keen to warn about is the danger of “cliff edge” trades where one stroke of good or bad luck dictates whether your trade is successful.
This typically applies to big transfers at this late stage in the window. Transfers are best profited from months in advance – riding the wave of expectation and hype – then exiting before the point where it is possible for the rumour to be really confirmed or shut down entirely.
We’re well into that territory now and things like what we have seen for Odegaard this week can be the result. A week ago you might have thought your Odegaard shares were worth £4.80 – the blue button price.
But the blue button price means next to nothing these days and it’s crucial to get to grips with that concept early on in the Matching Engine’s life.
A week later after news he may stay at Sociedad – you can only sell him for £4.23 so you either take that lower price or you are forced to awkwardly hold a £4.50+ Real Sociedad player for a long time.
It’s still a bit uncertain and anything could happen but taking these gambles at all is bad trading. Whilst you may win or lose on any individual – this behaviour as part of your usual game will end up giving you a mixed bag of results.
We want to win on our trades almost all the time, not 50/50.
As per March Scouting, that was your moment to buy Odegaard if you wanted to as he dipped under £3. A smart trader probably cashed him out as he spiked in May, missing the extra 30p that came on his price later but dodging a risky period and being able to secure a price close to the blue button whilst he was popular.
“Cliff edge” trades where you can wake up one day and find one bit of bad news has put you in an awkward position should be eliminated from portfolios.
It’s ok to take punts on transfers even at this late stage but do it on players that aren’t at silly prices and where you can comfortably hold the player at their existing club. The hoped for move should be a nice bonus – not totally essential.
3) Drops in recent days? (And “uncertainty”).
Overall the market has still been slowly rising but I see a few grumblings about drops and indeed you can see lots of usually popular players taking a hit.
There is a mix of Bundesliga players in there. Plenty of big ticket premiums like Bruno, Neymar, Mbappé, Sancho. Some failed transfers. Some underperformers.
A really mixed bag of players and reasons behind it and you can drive yourself crazy trying to pin down a single reason for “why?” at times like this.
The frenzied rush to the EPL is probably one reason – people desperate to free up cash to buy EPL players or have free balance to “react” to the games this week.
Incidentally, reacting to games is shorthand for buying players who score or do well which is generally a moronic thing to do. The optimal strategy is to know who is likely to win ahead of time and already be holding them.
These “reactors” finance almost all of my profits so I won’t complain that they exist. But good traders don’t tend to do it. Maybe, if you are a full time short term trader you could.
But even then, if you were really good you’d know in advance who would do well and just hold them, selling quickly when they perform well and rise, rather than get stuck playing fastest finger first with the “buy on the goal” numpties. Anyway.
We also saw some fairly sudden drops at the premium end of the market and my speculation would be this is a reaction to the “uncertainty” about a potential change to media or the performance matrix over Summer. This was discussed on the FIG podcast when he interviewed Adam Cole the FI CEO and that’s well worth a listen this week. (I sponsor this podcast by the way!)
I can imagine some big fish traders who hold 10% of the total value in Pogba or Sancho or TAA probably feel uncomfortable with the idea of the rules changing.
These sort of passive whale traders tend to hate change because if you have huge unwieldy positions in players you are very vulnerable. What if something changed and suddenly that £9 player feels worth more like £5?
If you have too many shares in one player you just can’t possibly find enough buyers for anything like the blue button price you thought you would get.
In the world of the Matching Engine, take the blue button with a pinch of salt. Your player will be worth whatever people are willing to pay on the day you sell and it makes prices much spikier.
A £9 player can be worth £5 overnight now if something happens to make traders believe that should be the case.
The “buy 10,000 Neymar, sit back and open a beer” strategy has been dying for a while but the Matching Engine makes that particularly risky.
I think Neymar is a great FI player but that doesn’t mean you should have 10%+ of your portfolio in him. Any player can have bad luck no matter how good.
There are two ways to protect yourself from uncertainty and allow yourself to embrace changes rather than fear them.
1) Risk management. For most people, something like 2.5% to 7.5% maximum portfolio value in a single player will be the right ballpark figure. 2.5% for a standard buy, 5% for a big buy you are confident in, trimming any player that goes above 7.5% of total portfolio value.
You want enough in the player for it to be worth your time in research and monitoring that player. But not too much where one slice of bad luck can be a huge set back.
You might want a more aggressive or passive approach. In my New Trader Challenge I worked with around 10% in each player but really that was to make the article series more exciting and I was probably being a bit of a showoff. It isn’t necessary to be that aggressive. Maybe if you were confident and playing with a small balance and were happy with some risk you could do that.
And on the flipside it’s important to be realistic. If you don’t have a ton of time to monitor players and know you can be a little complacent because life gets in the way – be a bit more passive and go for 1.25% or 2.5% in each player. Better to do that right then take a more exciting sounding aggressive approach that you don’t really have the time to pull off.
2) Read the tea leaves. By and large, we can predict the changes that are coming from FI. They don’t go out of their way to mess with us. They want us to be happy. Happy traders spend money. They don’t overly care what the rules are as long as traders like them.
So any changes you see you can bet will be the obvious and popular ones that people are asking for.
The details will be important and could have unintended/quirky consequences. But we can broadly set up sensibly – avoid players overly dependant on unpopular things like inaccurate crosses for example – and then work out the details later when we have a new matrix to analyse just as I did last time.
Some questions from my postbag this week:
System for buying players?
Thanks glad you are enjoying the scouting! Really is good to have new stuff to analyse.
I review dozens of players every week and see plenty I would love to buy, but I can’t! There are just too many out there to chase around.
And thinking in terms of value is the right way – obviously something popular like Sancho or Odegaard can be very exciting when they are hot, and both good prospects in their own right. But that doesn’t make them the most profitable from here. In fact, sheer popularity generally makes it unlikely they will be amongst the most profitable.
You can pay too much for good players and that is one of the major mistakes traders make consistently.
And if you want a player to double in price it is much easier to get a good £1 prospect to £2 than it is to get a £10 player to £20.
Obviously your £1 player will come with some risk because you are effectively betting that everyone else has undervalued this player – and you can get that wrong. That’s why this approach must be underpinned by strong research and market knowledge.
IPD Head Scratcher
Haha – not sure it is good trading per se to dump Silva and buy Messi that particular day, just lucky! Sometimes it just goes your way.
Some IPD players are finding life rough after the Matching Engine because at the cheaper end where lots of good IPD options hang out there isn’t always a great instant sell price.
I would try to do it before the game rather than after just in case he does very well and gets buying.
Hell. As a total aside. I just thought of a possible market manipulation on IPD. Tin foil hat at the ready.
Theoretically, with a friend, let’s call him Barry (He’s a good lad is Barry) surely we could “swap” shares over between each other to refresh the IPD window?
Let’s say Barry had shares in Strikey Mcstrikerson at £1 blue button. But the player had a 90p IS price. That’s probably too much of a hit to sell for just for IPD.
But what if I bid 99p and Barry sells to me straight away. Then Barry bids 99p and I sell his shares back to him.
In theory Barry just refreshed his IPD window on the cheap and he’ll buy me a pint and a bag of chips because he’s a good lad.
Just a thought so someone tell me if they think that won’t work! But it sounds dodgy as hell and against the terms so I might check if FI are aware of the possibility. Maybe they do and it’s partly why they had that hint in the survey about ditching them?
To be very clear I don’t advocate that sort of thing it’s just interesting to think about! Being able to set prices might open up lots of ways people can mess with the system so I hope FI are on the ball with this.