My "Blackjack Strategy"

[brownsfan019]

I mentioned in another thread about my "Blackjack Strategy" and wanted to explain further here.

On another forum that I am on, there is an arcade section and members play games to get the best score among the group. Obviously it's a more casual forum than here. I was playing a number of the games, but kept coming back to Blackjack. Just in case you need more info on Blackjack, here's a couple sites I found thru google: Blackjack Rules, How To Play How to Play Blackjack - Blackjack 101

The game of blackjack is fairly straightforward once you have your rules in place, like trading. What I found myself doing the first few times playing was that there was no rhyme or reason to hitting or standing when my initial cards totaled 16 or lower. And that is where you make or break your game - what to do when you have 16 or lower and what to do based on the dealer's top card showing as well.

So, like trading, after getting fed up of losing my $2000 initial fake money stake, I took a step back and said that I should have a plan (no matter how basic) if I wanted to stand a chance at making fake money. I then told myself that based on what I had and what the dealer's top card was I would do the exact same thing over and over again.

The reason I bring this up is that I found myself losing twice instead of breaking even on many hands. Example - one hand I would have under 16 and hit and the next have under 16 and not hit. Turns out that over and over again, I was constantly wrong and lost twice when I should have at least broke even on the hands. The odds of picking the right way to play each time randomly is not in your favor.

Once I realized that, the light bulb went on. You cannot in Blackjack or trading sometimes follow your rules and expect to make money. You simply cannot take one trade and then pass on the exact same setup the next time. Over time, the odds will work against you and you will lose twice. You'll lose actual money the first trade and you will lose the money you should have made on the subsequent trade.

And it's not just about taking your setups. It's about how you manage the trade - entry, stop, profit taking, etc. You must do the same thing over and over again. Just entering the trade is part 1. For example, in the WRB thread I mentioned that when exiting using WRB's, you have to make the decision to either wait till the close of the WRB or exit while the WRB is being formed. You have to pick one and go with that each time.

So now anytime I find myself over-thinking things, I just refer back to my Blackjack strategy and the example reminds me of what to do.

After putting my basic plan in place I took over the first place ranking. My score was 10,400 with a starting stake of 2,000. It took 21.5 minutes to take my initial stake and increase it by 420%.

[cooter]

So are you saying that your trading strategy is akin to that of a gambler, then?

May as well flip a coin, because your entry doesn't matter, only your exit strategy - is that the gist of this?

[brownsfan019]

Originally Posted by cooter So are you saying that your trading strategy is akin to that of a gambler, then? May as well flip a coin, because your entry doesn't matter, only your exit strategy - is that the gist of this?

No, that was not the point at all...

OK, let's start again...

The point is that whether trading, playing cards, etc. you should have a set of rules that you follow each and every time if you expect to make money. You cannot randomly guess or flip a coin and expect to make money.

In other words, you cannot take a trade based on setup XYZ and then pass on that exact same XYZ setup when it appears again b/c more often than not, you will be wrong twice.

The blackjack analogy was just that - an analogy. You could substitute blackjack with horseshoes, solitaire, rummy, whatever suits your taste.

[brownsfan019]

In the end, consistency is key to success.

[brownsfan019]

Originally Posted by cooter So are you saying that your trading strategy is akin to that of a gambler, then?

And on the topic of gamblers - we are all gamblers here. I know that traders don't always like to be referred to as gamblers, but in it's basic form, that's what we are doing here. We are gambling if the market is going to go up or down. And then we see what happens. This idea is the very definition of semantics at it's best.

[cooter]

Oh, ok. Guess I was being a bit obtuse... :rolleyes:

So you're saying, plan your trade, and trade your plan.

Simple enough, I suppose. Having the discipline to do so, while not deviating from your trading parameters - assuming the setups and plan are valid to begin with - is what separates the 80% losers from the 20% winners in this arena.

But here's where I question your argument:

Say I have a setup that is valid, but I don't take it - that is, I don't enter the market. What's wrong with that?

I should think the issue would be taking the setup to enter the market, but not exiting the market as per the plan. That's what your first scenario with the blackjack entails - no?

[brownsfan019]

Originally Posted by cooter Oh, ok. Guess I was being a bit obtuse... :rolleyes:

LOL

But here's where I question your argument: Say I have a setup that is valid, but I don't take it - that is, I don't enter the market. What's wrong with that? I should think the issue would be taking the setup to enter the market, but not exiting the market as per the plan. That's what your first scenario with the blackjack entails - no?

What's wrong with taking a valid signal? In my opinion, EVERYTHING. If you have a valid setup, why would you say No Thanks? That's exactly my point - if you pass this time and it's a winner, you lose. If you take it next time and it stops out, you lose. Now, you should have at least broken even on those two trades, yet you are down money.

The exiting is no different - if you say "I am going to exit on WRB's at the close", then you need to exit at WRB's on the close, not sometimes on the close and sometimes while they form. That's a losing game.

[cooter]

There is an opportunity cost to not taking a valid setup when, and if, you can. But is there a real, fixed dollar cost?

IMHO, if your setups are valid, then it shouldn't matter which one you take. You contend however that every such valid setup should be taken whenever you see it. This could lead to overtrading, in my book.

Discretionary trading implies that traders use some sort of discretion when choosing the setup to enter on, does it not? If not, why not just auto-trade your setups instead, and rely on the programming to do it for you?

[ant]

Originally Posted by brownsfan019 You cannot in Blackjack or trading sometimes follow your rules and expect to make money. You simply cannot take one trade and then pass on the exact same setup the next time.

As a previous card counter, I agree with this statement for Blackjack, but I don't think this applies to all trade strategies. I agree totally with this for trend following systems where a handful of trades can make your quarter or year. However, for other setups that occur frequently, I don't think you have to take every setup because each trade taken independently is insignificant. However, I do believe a trader should strive for consistency and a systematic approach in decision-making, and take each trade the same way according to their trade plan.

Originally Posted by brownsfan019 we are all gamblers here.

Gamblers by definition are playing a game of chance and don't have an edge; therefore, they will lose in the long run. A profitable trader has an edge and should win in the long run, assuming the edge is sustained over time. If a trader does not have an edge, then I agree (s)he is a gambler.

[brownsfan019]

Originally Posted by ant . However, for other setups that occur frequently, I don't think you have to take every setup because each trade taken independently is insignificant. However, I do believe a trader should strive for consistency and a systematic approach in decision-making, and take each trade the same way according to their trade plan.

I guess we disagree there b/c I don't see how someone can randomly choose what setups they take and make money over the long haul. Unless your winning percentage is 100%, I don't see the numbers work in your favor.

Gamblers by definition are playing a game of chance and don't have an edge; therefore, they will lose in the long run. A profitable trader has an edge and should win in the long run, assuming the edge is sustained over time. If a trader does not have an edge, then I agree (s)he is a gambler.

Again, it's semantics. This was beaten to death over at elitetrader and in the end, we are all gamblers in our life. When you walk down the street, you are gambling that a bus will not hit you. When you place a trade, you are gambling that your analysis is correct.