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I'd like to add my $.02 worth.
Gaming theory is much more complicated than gambling theory. Gambling is
analyzed with probability theory and a little statistics.
The gambling houses overcame the advantages, mentioned in Thorp's book.
First they hired him as a consultant and then followed his advice. They
switched to 3 decks, which alone would defeat almost all card counters, and
the dealer will reshuffle at any time (that is, the dealer does not deal to
the separator card).
Lionel Issen
At 08:56 AM 2/12/98 +0900, Rick Mortellra wrote:
>Hi Robert,
>
>I've posted this answer a while back, but I think the trading analogy
>compared it to the gaming industry is very apt. The fact that over the last
>7 years are so, the proprietary trading desks at many firms have become
>populated with experts in game theory mathematics attests to its usefulness.
>It's also not uncommon for people who are successful gamblers to be be
>successful traders.
>
>As Al mentioned, there are times when the Blackjack deck moves from the
>house advantage to your advantage. It's the ONLY casino game where that
>happens. But just knowing that the deck favors you is only half the game.
>The other half is money management. Knowing when to double up your bet or
>reduce it, take insurance, etc. is what makes you a consistent winner. BAD
>MONEY MANAGEMENT CAN TURN ANY POSITVE ADVANTAGE INTO A NEGATIVE ONE, WHILE
>NO AMOUNT OF GOOD MONEY MANAGEMENT CAN TURN A NEGATIVE ADVANTAGE INTO A
>POSITIVE ONE.
>
>Trading is the same way. Like casino games, trading the market in general is
>a negative expectation game. At its basic level, the sole purpose of your
>trading system is to tell you when you may have a positive mathematical
>expectation.
>
>Once your trading system has given you a signal then either your trading or
>money management "system" should signal if this positive mathematical
>expectation is large enough to trade. A general rule is that the projected
>upside/downside is at least 3:1. How you measure this is up to you. True
>range, price channels (Jim Green method), etc. are all exceptable methods.
>It's up to you.
>
>If you have a system that gives you a tradable positive mathematical
>expectation of winning then money management becomes clearly definable as
>deciding how much to "bet" and how to control losses either thru setting
>stops, hedging with options or other trades, trade add-ons, or using
>multiple time frames for example. The complexity and accuracy of your money
>management system up to you. The old 2% rule can suffice for many. For
>various reasons I require mine to be very accurate and robust and have spent
>many years building it.
>
>Betting too much is one of the most common and biggest screwups a trader can
>make as it is the fastest way to turn the slim positive advantage negative.
>Worse, but perhaps appropriately, the severity of the screwup increases the
>smaller your available trading capital. If you want to know exactly how much
>you should be trading there are precise mathematical way to determine so.
>I'll point you to the works of Ralph Vince and Nauzer Balsara for further
>elaboration if you are so inclined.
>
>Unfortunately many would-be traders would not like what the discover. First,
>they'll see that unless they have a minimum of $30,000 in DISPOSABLE trading
>capital, they are better off "investing" until they acquire it. Further,
>it's only when this trading capital increases to around $300,000 (why I can
>sympathize with system sellers) should they even consider quitting their day
>job to trade fulltime. I suspect that at that level many would rather just
>put the money in bank and "retire" !
>
>hope this helps,
>rick
>Tokyo, Japan
>
>
>
>-----Original Message-----
>From: Robert C. Richmond <rcrich@xxxxxxxxxxxx>
>To: Al Taglavore <altag@xxxxxxxxxxxx>; metastock-list@xxxxxxxxxxxxx
><metastock-list@xxxxxxxxxxxxx>
>Date: Thursday, February 12, 1998 3:21 AM
>Subject: Re: "Systems" & Money Management
>
>
>
>Al Taglavore wrote:
>
>Robert,
>Blackjack is the one casino game by which the odds can shift to your favor.
>As cards are played from the deck, the composition of the deck changes,
>and thus the odds change. As opposed to dice, where the odds remain the
>same with each roll because the numbers are always the same on each die.
>Yes, we have four riverboat casino's in the Shreveport/Bossier area, and my
>office is only 5 minutes from three of them.
>Al Taglavore
>
>
>Hi Al, the highlighted portion of your message is what I am suggesting. As
>the odds change, one can calculate based on knowledge of the remaining deck.
>But I am still trying to understand how this might apply in context of
>"money management" to which Rick referred.
>Just for kicks, proximate to the gaming industry that you are, do you think
>most securities "traders" would also engage in casino gambling or not? How
>about "investors?"
>
>
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