Updated: Sep 13, 2020
Selling is arguably one of the most difficult aspects of Football Index. The Matching Engine followed by the full integration of Order Books is going to have an impact on selling, but the fundamentals surrounding when to sell will remain largely the same.
The timing of selling shares is integral to a trader's success and the integration of the Matching Engine, followed by Order Books could make the importance of timing the sale of shares even more important. This is because we will not have the option to sell shares back to Football Index for what have, prior to the current huge spreads, been fairly reasonable prices. *Instant selling (Selling to Football Index) is ultimately being replaced by a function where we sell to other traders for a price they want to buy the share for (Bid).
Short Term V Long Term Holds
Whether you intend to hold a share for a short or longer period of time, the % profit/loss that the player is currently at is irrelevant. What should be fundamental in your decision to sell is if you would buy the player at their current price. However, there may be some slight differences when it comes to selling players based on how long you intend to hold the share.
Short Term Holds
You may intend to hold a player briefly as their prospects in the short term are favourable and you suspect this could lead to an increase in price. Such purchases may be based on momentum in the market, herding or market trends. Speculative rises often occur without a real justification in the underlying value of a player, by selling at the right time - you can take advantage of such rises.
To ensure you profit from such players, it is often best to sell just before what the market is speculating on does or does not happen, whilst there is still demand due to the speculation. Once the speculation of such an event passes, the demand may drop and therefore so could the player's price.
The reason it is often best to sell before what is being anticipated occurs is that the probability of what is being anticipated occurring is often relatively low, but the player's price may already reflect the probability of it taking place.
Weston McKennie's price has risen considerably this week partly due to speculation of a strong performance in the televised Borussia Dortmund V Schalke game this weekend. There has not been a fundamental change in McKennie's underlying value this week and the probability of a stand out performance against Borussia Dortmund is relatively low. Therefore, unless you were planning to hold McKennie long term, (Which would also make sense as he is a promising prospect) now would arguably be a good time to sell.
Selling short term holds when they rise
For players that you do not see as particularly valuable long term holds but have risen in price recently, it may be wise to sell if;
The increase in price can not be justified by a change in the player's underlying value. For example, favourable fixtures, suiting a market trend or having a one-off strong performance may lead to a temporary increase in price, but not an improved chance of the player earning dividends longer term
You would no longer buy the player at their current price
You do not expect a further increase in price in the short term
Selling short term holds when they do not rise
If the player has not risen in price as expected, again you may need to ask the question: 'Would I still buy the player at their current price?' If you would not buy them at their current price, then you may need to consider, why would someone else? It may be best to attempt to sell such a player. This reinforces the importance of holding players whilst the player is in demand.
If the player has dropped in price, the same key question should be asked: 'Would I still buy the player at their current price?'. If the answer is yes, it may even be worth buying more.
Buying players that you are confident other traders would want to buy in the future is going to be more important than ever once we have Order Books.
With short term holds, as long as you end up profitable from the majority of trades, there is nothing wrong with locking in a loss from time to time and then simply moving onto the next player. Circumstances and probabilities are constantly changing and we have to adapt and consider if we would buy certain players at their relevant prices regularly when making short term holds.
Long Term Holds
Market trends, favourable fixtures and occasional strong performances may lead to a player increasing in price temporarily, but if you are confident that the player is still good value throughout the many price fluctuations, it may be best to keep hold of them.
Longer-term holds are often more focused on fundamentals and prospects of dividends over a longer period of time. Therefore, price movements and what happens on a week by week basis may not need to be considered so much.
For example, say you highly rate a 19-year-old and you expect the player's price to increase longer-term as their prospects of earning dividends improve, it would not be wise to sell because of a few poor performances leading to a decline in price.
Similarly, if the 19-year-old has a few very strong games and spikes up in price, they may well still be worth holding. The 20/30% spike in price may be nothing compared to the price they eventually hit. If a player's price ceiling is extremely high then their price may gradually grow with the platform as they continue to develop over time.
If a player you intend to hold long term remains fairly stagnant over a long period of time, but you still view them as good value - often it is best to be patient and continue to hold.
Market Sentiment / Trends
When everyone in the market is doing the same, it can be instinctive to follow, the consensus can be very influential and false confidence can be contagious. Market trends can be very profitable as long as you stay ahead of the curve. Football Index Club will attempt to highlight upcoming trends and more can be read on profiting from market trends here.
Market trends can distort our view on the market a little as comparative pricing, the speculation which often drives a particular trend and the psychological boost we receive when a player rises can lead to us expecting more of the same. With market trends though, often this is not the case.
Market trends come and go, but very valuable holds tend to consistently, gradually rise over time. Market trends, therefore, provide us with an opportunity to sell players when they increase in price and become temporarily overpriced.
Below are a few examples of past market trends which have emerged which could occur again in the future:
Dividend increases leading to high PB scoring players rising
Unproven Youth Rising - especially during pre-season
Champions / Europa League players
Promoted / Relegated players
International tournaments - EURO 2021 / World Cup
Often the best time to sell a player that is increasing due to a market trend is once they have already increased in price and there is still demand for the player so that you can ensure that you sell the player to another trader for a profit.
You may not sell at their peak price, but, often it is better to attempt to sell whilst there is still demand for the player then to wait too long in case the demand wears off. Market trends can lead to large deviations in a player's price from their long-term values and so a player's whose price has been strongly influenced by the force of a trend could become overpriced and difficult to sell once the trend fades away.
As explained above, what you do will again depend on whether you intend on holding the player longer term or not and it may be worth considering if you would buy the player at their current price, if it wasn't for the market trend.
The dangers of extrapolation
Football is too fluid and Football Index is constantly changing so it can be dangerous to simply base predictions purely on the past. If a player has recently been earning dividends frequently and has subsequently increased considerably in price, but is unlikely to continue to do so to the same extent in the future - they may be worth selling.
Some of the reasons to avoid extrapolating are below:
It is rare that a current trend will continue indefinitely into the future
It is too simplistic an assumption
If the probability of future events changes, you may be left with an overpriced share
Often a players price can already be built upon the assumption of x taking place
When we buy a share in a player we are ultimately making a prediction on the future direction of that share's price and potential to earn dividends. The direction the player's price takes will mostly depend on the player's prospects of earning Match Day and Media Dividends in the future.
We are constantly responding to new information and so naturally our and the rest of the market's opinion changes on a player. If the player's prospects of earning dividends in the future worsen it may be best to sell. For example, it may be wise to sell due to unfavourable future prospects of earning dividends including; less game time, lower PB/MB scores, an unfavourable positional change, managerial changes, European tournament knock-outs, competitive new signings, poor team form, unfavourable transfer, relegation (Without the prospect of a transfer) amongst many other reasons.
Alternatively, we could see a downward market trend where players sharing similar player characteristics have started to decline in price. If it is possible to get out of such a player soon enough for a reasonable price, it may be worth attempting to do so.
For example, if a few older players have started to slightly decline in price, it could be worth selling some older players that you hold.
When a player's circumstances change for the worse, it is worth considering if the change is likely to be temporary or if it will improve again.
Recency bias can lead to player's prices increasing huge amounts as many traders speculate that strong recent performances/dividend winnings will continue further into the future. However, often it is worth considering how the player has fared in the past over a longer period of time, instead of solely focusing on how they have performed recently.
In many cases, such strong recent performances/dividend winnings do not continue as much as expected and so it can sometimes be wise to sell a player if they have risen recently and have therefore become expensive.
Improving young players may be more likely than older players to continue to improve, so context is also key when considering if a player has risen rationally due to improved prospects of earning future dividends, or due to recency bias.
Trading throughout the week
Timing will mostly depend on the various factors to consider above, but in general, we tend to see players rise throughout the week leading up to the weekend with a few sharp rises in a few players on matchdays and then a slight, general decline on Monday. With the introduction of order books, this may change in the future.
In terms of selling a player on a match day, the same principles explained above can still be very much applied. Match days may offer a great opportunity to sell a player if they increase in price to a point where you no longer value the player at the price they hit.
It is worth asking various general questions to consider what factors could lead to a player increasing further in price in the near or long term future too, such as:
Is the player likely to gain transfer links?
What milestones is this player yet to hit, such as a first international game, transfer to a stronger side, debut, first debut goal etc
What fixtures does the player have coming up?
Is the player likely to get more game time in the future?
Is the player showing promising PB potential?
Could the player earn media dividends in the future?
Could the player be played in a more favourable position in the future?
Is the player's team likely to improve their form?
Is the player's team participating in any upcoming tournaments?
Will the player be featuring at any international tournaments?
We can not make completely objective predictions and when it comes to selling it is very difficult to always get it right, but we can attempt to avoid being too tainted by our subjective views, weigh up what we think of a player's price at any given moment by responding to new knowledge, profit from market trends and be aware of various biases which can create opportunities to execute profitable trades.