Lessons Learned From Blackjack
Even
with the bounce the last couple of days the market still looks ugly.
The risk/reward being offered by the market currently is not great. I
would be very selective with any trades being put on either long or short.
There was no column on Monday
because the snow in the northeast delayed my return from a vacation weekend.
Fortunately, I got “stuck†in Las Vegas. The snow has helped to put me behind
in my work a bit, so with Vegas on my mind I decided to re-run my lessons from
the blackjack table:
Whenever I play blackjack, I’m
always amazed at the way some people throw their money away with stupid bets and
poor playing choices.
Here are a few blackjack
questions for you (answers below):
1) If you have an Ace and a
Six, and the dealer is showing a Seven, what do you do?
2) Under what circumstances
would you want to split Five’s?
3) If you have a Four and a
Six, and the dealer is showing an Eight, what do you do?
If you don’t know the answers
to these questions, you shouldn’t sit down at a blackjack table. When played
correctly, the odds of winning at blackjack are approximately 50/50 (without
counting cards), yet casinos make extraordinary amounts of money at their
blackjack tables. This is because most people don’t bother to do the basic
things necessary to put themselves in a position to win.
As I watched people get crushed
at the blackjack table because of stupid mistakes, I realized there are several
lessons to be learned from blackjack, that are applicable to trading:
1)
Know the basic strategy — You should
know the correct play for every situation, whether it be hit, stand, double,
split, or surrender. If you don’t know, you can buy a cheat sheet in many
casino gift shops (about $2). They don’t care if you sit there at the table
with it. You should also know your next move for any situation with regards to
a position you are in, whether it gaps, breaks supports or resistance, bounces
off trend lines, or makes any other significant price move. Know where you’ll
scale out, re-enter, completely exit, etc.
2)
Execute the strategy – Don’t hit or
stand based on your gut feeling or based on the whims of the drunk sitting next
to you. Make the move that gives you the best odds to win. Don’t buy a stock
based on gut feeling or what the drunk at the blackjack table says either.
Make sure you look at all of your criteria before entering a position, whether
fundamental or technical. Then know you triggers, and execute your plan.
3)
Don’t bet more than you can afford to
lose — You don’t want to be wiped out on one bet or one trade. You also don’t
want to lose all of your gambling money for the weekend at the first table you
sit down at. Don’t let one bad market session or one week decimate your
account. Above all, if you lose all your money, don’t ask the casino to extend
you credit — they will. And don’t buy stocks on margin if your not making
money. You’ll find your broker to be just as accommodating as the casino.
They’ll both lend you all the rope you need to hang yourself.
4)
Practice sound money management — If
you’re up a bunch of money at the table, make sure you walk away a winner.
Nothing feels worse than being up big, and then walking away having lost money.
If a trade is significantly in your favor, make sure you either take some
profits, or move your stops up, or both. Don’t lose money on a stock that is a
big winner.
5)
Make sure you’re in a positive
environment — If the dealer’s a jerk, and the casino is a dump, and rest of the
people at your table are annoying, get up and move. There’s always another
blackjack table, and it’s a lot more fun to play in a positive environment.
With regards to trading, make sure distractions are minimal. Make sure you have
everything you need nearby. Make sure you surround yourself with the kind of
people that will not hinder your trading during market hours, or trade alone.
6)
Don’t drink too much — Casinos don’t
dole out free drinks because they enjoy partying with you. They prefer someone
who can’t think straight, will make stupid mistakes, and throw their money
away. If your decision-making is impaired, you chances of winning are
significantly reduced. Same for the markets. If you’re not mentally capable
of executing your plan, you should do whatever it takes to get yourself back
into the correct mind frame. For some that might mean taking a break from the
markets. For others it might mean coffee and Tylenol.
Regardless of whether you are
playing blackjack or trading stocks, you should do everything you can to put the
odds in your favor and give yourself the best chance to make some money. Follow
these six simple rules, and if you still can’t make money in the markets, invest
in a few disguises and learn how to count cards.
From a market standpoint, not
much has changed since my report last week. We are still trading between the
50-day moving averages and the March highs. I see positive action and good
breakouts in a number of issues. The long side looks like the place to be, but
the markets are still clinging to every bit of war news, which increases both
volatility and risk.
Best of luck with your trading
(and card-playing),
Rob
robhanna@comcast.net
P.S. A great book how to bet
at different casino games (including blackjack) is Edwin Silberstang’s “Winner’s
Guide To Casino Gamblingâ€. An excellent nonfiction read about card counters is
“Bringing Down The Houseâ€, by Ben Mezrich.
Now for the answers:
1)
Hit.
2)
Never split 5’s. You’re likely going
to end up with two bad hands instead of one good one.
3)
Double.