More on Blackjack and investing
There is actually such a thing as "theory of runs" which applies equally to gambling and trading. Briefly, you look at what percentage of times you lose (a hand or a trade) and you try to bet (spread your risk) in such a way that a streak of bad luck will not knock you dead. This is entirely dependent on your style of play/trading so there is no magic formula.
Now on to my Blackjack technique. It is rather similar in the way I decided to short SIEB at 60; you look at an unusually strong run and try to estimate what are the odds that it will keep going on in full force. Of the 3 bets that I made, in one case the dealer had a run of 5 or 6 Blackjacks or 20s in a row. And I had actually had a bad run at the same time (regardless of the dealer's hand). So I figured he is a player like the rest of us and eventually he has to come up for air. So I bet it all. Besides, after losing so many hands, going home to bed was not such a losing proposition. Other times I look at what is on the table and what the dealer holds (I only play if there are 4 other players at the table and I can be the last player). If you've seen 15 high cards go by in the last hand and half, what are the chances that of the next 4 cards, 3 are high? This is different than strict card counting. Using this strategy, the previous year I split my 10s 3 times and manage to bust the dealer (yes, the Queensland government paid for that trip too).
So what does this have to do with trading? Take a look at the long term chart of AVA. What are the odds that it's most unusual run could have gone on? (I bought Mar 60 puts yesterday). Or from a fundamental point of view, this company has been around a long time has hardly ever gone north of 20. What are the odds that they've managed to radically (and successfully) change their business around in the past few weeks? I think about these and when I spot such a thing, I bet the house (or close to it). The rest of the time I'm just floating with other players until the dealer provides me a great opportunity.
later,
ST
P.S. A side effect of this is that sometimes I lose very big (really painfully big). In that sense I sympathize with the late Jessie Livermore, though I'm certainly not half as good. |
