What Is Variance?
Variance is the natural up-and-down movement of results caused by randomness. Even if you have a positive expected value (+EV), your actual returns will swing above and below the long-term average until thousands of bets have been placed.
Short-term results are luck. Long-term results are maths.
Understanding variance removes emotion from trading and prevents you from abandoning good strategies during temporary downturns.
Why Variance Matters More Than Most Traders Realise
Many traders quit strategies too soon because they judge performance by a small sample. A strategy with a real edge could easily show a 20–30 trade losing run if the strike rate is low. This does not mean the edge has disappeared — it simply reflects the randomness baked into probability.
Strike Rate and Losing Runs
The lower your strike rate, the longer your losing runs can become — even with a profitable strategy.
Examples:
- Strike rate 50% → longest expected losing run ~ 6 in 100 bets
- Strike rate 30% → longest expected losing run ~ 12 in 100 bets
- Strike rate 20% → longest expected losing run ~ 18 in 100 bets
These are not extreme scenarios — they are normal. This is why emotional traders often struggle while data-driven traders stay consistent.
How Expected Value (EV) Links to Variance
EV tells you whether a strategy is profitable in the long term. Variance tells you how bumpy the journey will be.
A strategy with high EV but low strike rate will still produce wild swings — profitable overall, but uncomfortable to trade without discipline.
Use the Smarter Trades EV calculator to understand whether your selections are truly positive EV: Open EV Calculator.
Kelly Staking and Variance
Kelly staking adjusts stakes proportionally to your edge. While mathematically optimal for growth, full Kelly is extremely volatile and unsuitable for most traders.
Many Betfair traders use:
- Half Kelly – reduced variance, reasonable growth
- Quarter Kelly – low variance, smoother returns
You can calculate Kelly stakes using: Smarter Trades Kelly Staking Calculator.
Examples of Variance in Action
Example 1: A High-Strike-Rate Strategy
A trader hits 70% winners backing short favourites. Losing runs are generally short, but EV may be low and commission can erode profit. Variance is small but rewards are modest.
Example 2: A Low-Strike-Rate Strategy
A value hunter backing bigger prices may win only 20–25% of the time. Variance is enormous, but if the strategy is +EV, profits arrive in bursts. The trader must withstand long barren spells.
Example 3: Trading vs Straight Betting
Traders often hedge positions early, reducing both variance and average profit. Bettors who let bets run see higher swings in either direction. Neither is right or wrong — it depends on your style and risk tolerance.
The Psychological Side of Variance
Humans are bad at interpreting randomness. We assume patterns where none exist and panic when results swing outside expectations. Good traders recognise that variance is not a sign of failure but a feature of probability.
Common emotional traps include:
- Chasing losses
- Abandoning a strategy too early
- Over-staking after a losing run
- Assuming recent results predict future outcomes
How to Protect Your Bankroll Against Variance
1. Use Fixed Fractional Stakes
Avoid flat staking if the risk varies dramatically between markets. Use a consistent fraction of your bankroll instead. This smooths volatility and prevents catastrophic losses.
2. Understand Your Strategy’s Expected Losing Runs
Calculate likely losing run lengths based on strike rate. If your staking cannot survive that run, adjust it before trading live money.
3. Track Every Bet
Accurate tracking reveals whether variance or poor decisions are driving results. Data kills emotion.
4. Scale Kelly Down
Quarter Kelly or even 10% Kelly is far safer than full Kelly. The goal is to stay in the game long enough for EV to play out.
Frequently Asked Questions
Is variance the same as risk?
Variance is part of risk, but risk also includes factors like poor strategy, bad value, over-staking and emotional decisions. Variance alone is not the enemy — misunderstanding it is.
How long can a losing run reasonably last?
It depends on strike rate. A 20% strike rate strategy can produce losing runs of 15–20 frequently. Even 30% strike rate strategies can have losing runs of 10–12 without anything being “wrong”.
Can I avoid variance entirely?
No. Variance is fundamental to probability. You can reduce it with hedging or fractional staking, but you cannot eliminate it.
Does hedging reduce variance?
Yes. Hedging smooths returns, often at the cost of maximum upside. Traders choose their own balance between volatility and profit potential.
Where can I calculate EV and Kelly stakes?
Use the tools on: Smarter Trades to evaluate expected value and sensible stake sizing.