There are two very important concepts that combine to form the key to long-term success in sports trading, namely understanding the odds and identifying value, and it is well worth taking the time to understand what these mean for anyone who gambles on sports.
Understanding the odds essentially means identifying what the market is pricing as the probability of that particular outcome, this is called the implied probability. There is a useful tool for calculating this here, but to work it out yourself, it is just 100 divided by the decimal odds. To take the example of Australia's price to win the 2015 Ashes Series on the Betfair Exchange prior to the series starting, 100/1.46 = 68.49%.
Once you have identified the markets expectation of the probability of a given outcome, you can then go about identifying if and where there is value in the market. Value is where the implied probability of an outcome in the market is different to the actual probability of that event. To take the classic example of a coin toss, there is a 50% probability of either heads or tails occurring on any given toss. If we were betting on this, what odds would represent value here? The total probability of all outcomes is 100%, and dividing this by the probability of each outcome (50%), gives fair value odds of 2.00 for both heads and tails. Let's say that there is a market for this on a betting exchange, and the odds (to both back and lay) are 1.90 heads, and 2.10 tails, is there value in this market (assuming a non-rigged coin)? Calculating the implied probabilities for each outcome (100/1.9 for heads and 100/2.1 for tails) gives a 51.6% chance of a heads, and a 47.6% chance of a tails. The market is, therefore, overpricing the chance of a heads, and underpricing the chance of a tails, and so there is value here, either in laying the 1.90 for heads, or backing the 2.1 for tails.
Of course, either outcome could occur, and just because we have found value does not mean that we have found a guaranteed winner. What it does mean, however, is that we have a positive expectancy, an edge. That is, over a large number of outcomes we expect to profit from the discrepancy between implied and actual probabilities. To use the coin toss example, if we backed tails at 2.1 for £10 over 1000 coin tosses, we expect to lose 50% of these (-£5000), but to win the other 50% (+£5500), resulting in a net profit of £500.
Where sports trading gets complicated is in deriving accurate probabilities for the different outcomes of an event. There are plenty of different methods of doing this, from supremacy ratings based on detailed statistics to just having a hunch that one side will perform on a given day, but what all of these methods have in common is that they identify where there is a mismatch between the implied probability in the odds and the actual probability of an outcome.
Learning to identify value in sports markets can be difficult if you're new to it, and so it's advisable to limit stakes and manage your bankroll properly while you're developing your eye for value. I'd also recommend spending time on twitter looking at what more experienced gamblers are doing and trying to get a feel for why they are taking their bets on.
This can be quite a complicated topic, so if there's something you'd like clarified, please leave a comment or get in touch with me on twitter, and I'll do my best to help. For a really good introduction for sports betting, including a discussion of the above, I'd recommend Bettingexpert.com's academy.