Financial Markets & Blackjack
Financial Markets & Blackjack Explained
Like all excellent games, blackjack is simple to play but difficult to master. As a game it wasn’t intended to be mastered at all, but with the enticement of large wins to be had, over time the players have figured out how to move the odds to their advantage.
Card counting ability has, over the years, cracked the game open, so that if you can master this art, you can play and win – until you get thrown out of the casino.
Maths is an extremely artistic science and probability is one part of science that is particularly open to interpretation. Even the finest mathematicians can vehemently disagree about the use of probability in certain cases and basically, there can be only one answer. So using the probabilities of blackjack and then discovering a way of beating the odds has not been an easy matter. Considering what to play depending on the dealer’s card is in itself a complicated matter, as well as having to think about the counting part of it.
Play your cards right
The crucial idea is that there is an optimal way to play blackjack without counting and this approach will lose on average roughly 2.5% on each turn. When you play, unbeknown to you, the odds are sometimes in your favour and other times they are not, based on what cards have already been played. You would increase your stake if you knew the odds were in your favour. In this way, you would win more than you lose, because you would bet to win more when the odds were on your side, then wager as little as possible when the odds are that you will lose. Therefore you win overall.
Its a good idea to keep a rough score of what cards come out and this will enable you to work out when the odds are in your favour. The more low cards that come out, the better. You group high cards and low cards up, so that the low have a plus score and the high are a minus score. As the cards are dealt you keep a running total. When the score is a positive number, raise your stake. When it is a negative number, bet the minimum. If you proceed with this method, you can turn the odds 2.5% a turn in your favour. So if you wager £10 a hand, each hand is on average winning you 25p.
If you were a computer, you could do a much more exact job of card counting and note the exact probabilities and optimise each hand down to an accurate level. A much greater profit would be made than this 2.5% return from the most basic systems.
There are more advanced systems, which follow the overall pattern I’ve described, where the best course to play changes depending on the score. I know of intricate systems you are meant to be able to master which have an expected 8% pay-out. For punters who are able to keep all the different rules and permutations in their head, this will be the best way of card counting, but you will soon be asked to stop playing if you win at this rate. Dealers at Casinos keep a count too and it will become apparent very quickly if you are a qyality card counter. However, the basic methods are relatively easy to learn and execute.
If you play blackjack at a casino its similar to dealing with trading at the stock market. If you play and are not skilled you will quickly lose your money. If you follow your instincts, you will also leave the game pretty early.
The stock market and the casino live off what can be considered a spread. In blackjack’s situation it is the 2.5% that the odds are in the favour of the house, in the stock market it is the 1% or 2% costs of buying and selling a stock.
If a trader casually churns his positions every day, which many do, the effect on his capital will have the same result as playing blackjack without card counting. It will eat away at the cost of his trading, as he will win and lose at random but pay his costs when ordered. In the end, his stake money will be gone.
A trader and a card counter must an edge to win and have a scheme whereby it has to make more than his costs.
Blackjack is excellent as training in stock trading. It is a brutal education in the realities of probability. First of all, there is a system that will work – card counting – and you must put in the effort to learn it. There are many traders who accumulate into the market on a whim and lose their shirt. You just can’t do that with blackjack card counting. Its beneficial to learn and practice ‘perfect play’, keeping the count.
You can learn to card count on a computer, but playing blackjack for money is a different kettle of fish compared to playing for matchsticks. This is true for the variance in paper trading and trading with real cash. The majority of people are unfamiliar with putting money at risk and the constant betting in blackjack is an excellent way of taking the emotion out of putting money at risk. It is also an antidote for getting upset about losing.
Blackjack is a continual round of winning and losing and it soon becomes inconsequent on a turn basis as to the one-off outcome. The card counter soon becomes used to playing and noting the general trend of returns rather than bein obsessed on any particular outcome. A trader that hates to lose will soon be making random choices, which will inevitably lead to failure.
Luck comes and goes at the table as it does when you are investing. Conducting a winning investment strategy and winning by card counting feels similar. At times when the tide of probabilities favours you in both these instances, the emotional responses you will have, feel the same. The familiarity of steadily accruing money at blackjack is a good lesson to carry with you to the markets.
Every system experiences varable returns. Blackjack enables you experience the ups and downs and practical experience of money management. When you decide to play, you should go with about 50 times your stake, otherwise a bad run of luck might wipe you out. This educates the player that he must only bet a moderate part of his capital on any one bet, as he could otherwise put in jeopardy being ‘bombed out,’ by a bad run in the market. The majority of novice investors bet too big and pay the price accordingly.
The majority of people fail to realise that ostensibly unlikely events are not necessarily all that unlikely. Card counting trains you that if you suffer a series of failures but you have sufficient chips to ride it out, things will return to normal.
No fun please, we’re day traders
Playing for hours on end soon accustoms you to the excitement of play itself. Enjoying investing, such as gambling, is an expensive luxury. Its hard work where playing for profit is concerned. The thrill of blackjack soon dissipates in the steady pace of playing and winning and this is an excellent attitude to take to the markets – and an expensive one to lose.
Most casinos will not fling you out if you play carefully and don’t get greedy. If you wage $25 a hand properly will net you about $40 an hour if you play on a full table and take things easy.
All systems are gruelling work, but without a system you will lose your money. When investing, you need to know what your edge is. In trading, this can mean making up an inventory of opportunities that might occur in the market, through research. This must then be confirmed by back testing.
The majority of day traders have their equivalent of a count: these are chart indicators. This may be the changing over of two moving average indicators that measure the price of a stock over a period, or an indicator of the speed of change in a price. When the values cross inevitable thresholds, it is a buy or sell signal, in the identical way as a positive count makes you increase a blackjack stake.
Such an indicator may or may not work. This is why you would back test the system. Software such as Wealthlab (wealth_lab.com) will allow you to test your trading system rules and compete against the historical performance of any stock or index and see if it works. This tells you that you can trade not in hope, but in expectation of a return.
The originators of Blackjack only had pen and paper to work out their systems, you can now use your computer to try and come up with your own. However putting the system into practice still takes the same kind of patience, character and skill as placing your money down on the green baize and winning. And when you’re soaking up the casino atmosphere and a little of its cash, you can get ready for the biggest gambling games on earth: The financial markets.