My "Blackjack Strategy"

[brownsfan019 17]

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%.

[Guest 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 17]

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 17]

In the end, consistency is key to success.

[brownsfan019 17]

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.

[Guest 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 17]

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.

[Guest 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 10]

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.

 

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 17]

. 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.

[brownsfan019 17]

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?

 

How can it not matter? Unless you win 100% of the time, it matters big time. If your win % is 60% assuming you take everything, as soon as you eliminate a winning trade(s), your % changes drastically.

 

How can you possibly screen your valid patterns out then? Gut instinct? Just because?

 

And if you are screening out your valid patterns, perhaps it's the pattern that you are trading that is not good, not the fact that you randomly decide when to take your setups. If you have 100% confidence in your trading methodology, you should WANT to be in EVERY setup. If you are somewhat confident, very different story then obviously. There's no reason that a trader that knows their setups are solid and produce over the long haul that would WANT to pass on some trades.

 

I'd love to know why you would want to screen out valid setups. That's kind of contradictory though - if you are screening out your valid setups, are they even valid to begin with? :rolleyes:

 

I'd love to auto-trade all my setups if I found a programmer that could program how I trade. Easier said than done.

[Don4 10]

In the end, consistency is key to success.

 

I agree with u 100% brownsfan!!

[Don4 10]

In my opinion this is what makes the simple systems work,and most dont even realize it. Simple systems forces you to be more consistant in the way you trade.

[brownsfan019 17]

In my opinion this is what makes the simple systems work,and most dont even realize it. Simple systems forces you to be more consistant in the way you trade.

 

Good point.

[torero 10]

I will have to agree with Brown here on the fact that if you cherry pick your trades (like most system traders who interfere with their own systems after testing long and hard enough to find that it has a chance of making money), you will lose because the system requires all the trades to come up with the stats you have. I learned this from system testing, not from discretionary trading. The market gives us a certain amount of right and wrong market conditions where a system will work and will not work. Missing one can be the one that would make up the losses if not more. You have to take the losses and the wins. This has happened to me where I decided to take one and sit out the ones I think the market was too strong to short and vice versa. Well, I was proven wrong time and again. This cherry picking is called Optimizing, basically trying to weed out the bad trades. But the performance results will give a totally different picture (usually worst than before the optimization).

 

I'm speaking from the experience of testing and trading auto systems. Overtrading happens when you trade in small timeframes, but if you trade a system that gets a 2-4 signals a day (I prefer less), your chances are better on NOT getting eaten up by commissions and slippage.

[brownsfan019 17]

Overtrading happens when you trade in small timeframes, but if you trade a system that gets a 2-4 signals a day (I prefer less), your chances are better on NOT getting eaten up by commissions and slippage.

 

Good point tor. The fact that you take every signal your system produces does not mean that you are trading 100 times a day. It might, but there is no correlation between taking all your setups and overtrading.

[Guest cooter]

... there is no correlation between taking all your setups and overtrading.

 

Really.

 

So I place a trade early in the session, in accordance with my trade setup. It's a winner, and following my exit strategy, I take profits. In fact, it's so good that I've modestly exceeded my profit target for the WEEK.

 

But wait, I see yet another setup forming. And it looks valid too! What do I do?

 

A. You know it's valid, according to your parameters, so you take the setup with your regular position size

 

B. You follow choice A. but with a reduced position size - after all, why give away your gains

 

C. You follow choice A. but with a increased position size - after all, you now have more $$$ to risk

 

D. You've already handsomely exceeded your daily profit target, so why bother - wait until the next trading session tomorrow

 

E. Do nothing, sit aside and enjoy the $$$ - take the rest of the WEEK off

 

All thoughts are welcome....

[torero 10]

If the position sizing has been planned out ahead of time in your trading plan or system, then by all means trade with it. But if you don't take the next trade, it'll skew the results of the performance of the system. This next trade may be the one that will make up for the 4, 5, 6 etc trades that will turn out to be duds. If the system has been tested and proven ahead of time that the positive expectancy is there, why deviate from that? All these parameters have to be in place as part of the system such as trade only a certain amount of time everyday, a maximum number of trades allowed per day. You can even test if a maximum $$$ has been reached each day and stop trading, find out if it does get a positive outcome. All these have to be prepared in the trading plan before so there's no feeling of "now what do I do? Go with my instinct or intuition?" You know how that turns out.

[brownsfan019 17]

Really.

 

So I place a trade early in the session, in accordance with my trade setup. It's a winner, and following my exit strategy, I take profits. In fact, it's so good that I've modestly exceeded my profit target for the WEEK.

 

But wait, I see yet another setup forming. And it looks valid too! What do I do?

 

A. You know it's valid, according to your parameters, so you take the setup with your regular position size

 

B. You follow choice A. but with a reduced position size - after all, why give away your gains

 

C. You follow choice A. but with a increased position size - after all, you now have more $$$ to risk

 

D. You've already handsomely exceeded your daily profit target, so why bother - wait until the next trading session tomorrow

 

E. Do nothing, sit aside and enjoy the $$$ - take the rest of the WEEK off

 

All thoughts are welcome....

 

If you have a daily or weekly monetary goal in place, you take that. I personally do not like that strategy at all.

 

Assuming you are not done trading based on a $ goal, then YES you take EVERY single trade that your system produces b/c you have NO IDEA which ones will work. What if you stop after 1 and you later see that 5 more would have produced profitable? You just left a ton of $ on the table.

 

Again, if you truly believe in your trading system, this should make perfect sense. If the trading system is more or less a 50/50 shot, then I would hesitate as well.

 

This is my opinion from my personal experience. I think it's good for new traders to look for a $ goal and then quit. But for those of us that have been around for awhile, we realize that you have to strike while the iron is hot. That may mean that one day produces profits for your entire month. It happens. If you bypass those extra trades b/c you were afraid to give back money, it will cost you in the long run.

 

Maybe others have found that just taking one or two a day and see what happens is best. But, whether you are a trend follower, counter-trend, chop, etc. I believe you must strike and strike hard when the conditions that you are waiting patiently for present themselves b/c there's going to be plenty of times where not much is happening in your trading world.

 

Along the lines of another thread, we were discussing the common traits between a sales career and trading and this fits right into that. As a sales person you realize that all it takes is ONE sale to make your day/month/year. I don't think you can hit one trade to make your year, but the idea holds - you can hit a handful of trades during the month that make your month. You can hit those all on the same day. So, one day of trading could very well make your month. If you eliminate those big winners simply b/c the first trade of the day made money, you just set yourself back in a large way.

[Anonymous 11]

B.F.;

 

There is a very basic flaw in this idea: Not all situations are equal. That is, not all price action is created equal.

 

In keeping with the blackjack idea, you need to include card counting. Card counting basically says, while there is a "set" way to play each hand, the best play actually needs to take the "count" into it. Simply, while hitting a 12 vs. a dealer's 7 is correct. It is not correct if the count is -5. The -5 means more face cards to bust you and thus one should do the opposite of what basic strategy says. So 95% of the time you may follow basic strategy and hit your 12, there are those times 5% when standing is better.

 

Card counters can be banned by casinos.

 

Casinos will gladly teach basic strategy.

 

Simply, Basic strategy. only gets one to close to a 50/50 proposition. Knowing when to deviate gets one the real edge and puts fear in the hearts of the pit bosses.

 

Not every moving average cross is created by the same price action or volume or volatility. One's edge comes from being able to discern the differences.

[brownsfan019 17]

Pivot - my idea here is not clear apparently. The analogy of playing the blackjack hand the same time, every time was to simply say - be consistent in your trading.

 

The actual breakdown of this being a blackjack analogy is irrelevant in what I was attempting to convey. You can substitute blackjack for rummy, dice, dominos, horseshoes, corn hole, lawn darts, etc.

 

The point that I tried to convey and fell short was to simply say - you need to 'play' your hands consistently, whether in trading or at the card table. You cannot one hand hit on a 12 and the next hand not hit that same 12 and expect to come out ahead. Odds are, you will lose twice. I understand there's always exceptions to the rule, esp for the pro's, but until you reach that level, consistency is key. And I proved it to myself - I took the high score rather easily by simply applying very, very simple rules. As you know, I am a big fan of keeping things simple. I think there's a lot of unnecessary over-analyzing that goes on when people trade or play cards. It's almost as if we want things to be much harder than they might be...

[Guest cooter]

You've got to know when to hold 'em, know when to fold 'em

Know when to walk way, and know when to run

You never count your money, when you're sitting at the table

'Cause there's plenty time for counting, when the deal is done.

 

- The Gambler, Kenny Rogers

[Guest TRex]

Professsional traders don't gamble, they speculate when the probabilities are in their favor.

 

Philosophically, we can get into broad discussions about how life in general is a gamble, etc., etc. but none of that is going to help us become successful traders.

[Reaver 10]

I am no expert, but by definition, if you are not a discretionary trader, then you should take all setups that come along.

 

By trading a mechanical system you are in essence forfeiting the factor of discretion in your trading...

 

However, if I were kicking some major butt at the beginning of the week and had already exceeded my target.....Even though I know I am not technically supposed too....If I for some reason just wanted to relax, I maybe would take the week off...because technically in your business plan you have exceeded your target so you are meeting your expectations....but logically, and by definition, I would also know that I SHOULD take every setup that presents itself, as that by it's very nature is how a system is supposed to work.

 

The Kenny Rogers song applies only to discretionary traders, IMO...for a system trader-knowing when to hold, fold, cover, go long, or whatever has no bearing......it is all about what the system says to do....

[brownsfan019 17]

Professsional traders don't gamble, they speculate when the probabilities are in their favor.

 

Philosophically, we can get into broad discussions about how life in general is a gamble, etc., etc. but none of that is going to help us become successful traders.

 

Ok... thanks for sharing.

 

As I attempted to state, the thread has NOTHING to do with the act of gambling. It was an ANALOGY.