u/Billabongbologanesh

Short answer: You don't fight it head-on.

Taking feedback from a close friend, Natural-Pizza, who told me I should slice my articles to one-fourth their size.

Early on, about 17 years ago, I was told by friends that you cannot win in casinos because "the house always wins." I was also told that day trading is extremely dangerous (well, it is!) and that the market makers always win.

Let's break it down. "The house always wins" is both true and false. Sort of like Schrödinger's Dhoni*! Is Dhoni still playing in the IPL? Has he retired, or is he still playing? (*Cricket reference for my North American friends.)

Most people think beating the gorilla means wrestling it. Professionals know better. They wait until the gorilla is distracted, looking the other way, or simply doesn't care about what they're doing.

In a larger sense, the house (or the casino) wins overall on a yearly, monthly, weekly, and even daily basis (most days) because there are far, far, far too many people who do not know what they are doing and are ever willing to donate. So, in blackjack, the casinos should, in their own interest, deal the game with good rules and deep deck penetration (meaning they deal 75% of a double deck and 90% of a six-deck shoe). Why? Even if a few professionals use this against them and beat them, on the whole, the casinos are able to make more money with more rounds dealt to the so-called "ploppies." The gorilla doesn't care if a few ants carry away a few crumbs. It only cares that the buffet stays full.

In the world of stock markets, if you could analyze the market, the trend, and the price action, use the best scanners to filter among more than 6,000 stocks, use technical analysis correctly, look at the options structure of your chosen few, and then make a trade, is the house (the market makers in this example) losing to you? No! Even assuming the options prices change every five seconds, in a 6.5-hour trading day they have 20 × 60 × 6.5 = 8,400 different prices for the stock, per expiry, per strike. Do they care if you find the most favorable one for entry and exit? No. They care about managing their overall risk, and they are playing primarily a volatility game, whereas most smart retail traders are playing mostly a delta game (and some with a mix of gamma, theta, skew, volatility, etc.).

The gorilla isn't trying to stop you. It is trying to run an entire ecosystem. If you quietly pick up a few dollars while it is busy doing that, you are almost invisible. Do you see the parallel? Neither the casino nor the market makers can afford to reorient their businesses just to prevent these opportunities. That would be like cutting off your nose to spite your face!

So you keep watching the gorilla and decide when, and if, you want to attack it. You can choose the weapon, you can decide when to attack, and you attack only when the odds are favorable to you. You wait. You observe. You attack only when the odds are overwhelmingly in your favor, and then you disappear before the gorilla even realizes you were there.

So perhaps the better question isn't whether the Efficient Market Hypothesis is true or false. Frankly, I don't care whether the market is efficient at a larger level. The fact that there may be pockets of inefficiency is all that matters to me.

The real question is: How high is the threshold, and are we willing to do what it takes to cross it?

"Heat" is what happens when casino floor personnel, a pit boss, or even a table games manager stands next to you or in your vicinity, watching your play and reading your body language to visibly sweat your action. It is part intimidation, part sweat on their part, and all a game of cat and mouse to identify whether you are skilled or not, letting you know you are being suspected of possessing neurons and daring you to continue, or possibly giving you an "out" to leave and live another day.

If you never had any heat in blackjack under what any pro would consider decent conditions, the casinos would be full of pros and constantly creating more pros because of the no-heat rule, and casinos would be overpowered by pros. That would be unsustainable after a while.

So the heat has created an additional barrier to overcome for a pro who is willing to push past the other barriers of technical counting skills, risk management, willingness to work hard, networking, and managing the operations and routing with acceptable expenses. The way a pro manages to detect heat, handle heat, sometimes deflect heat, or accept heat contributes quite a bit to deciding the speed of the earnings curve.

In trading, the hardest thing for me to learn has been position sizing. There are great articles written in OneOption and r/RealDayTrading about almost every aspect of technical trading, mindset, tools, etc., but there might be a reason why it has not been dealt with deeply. My guess is that it is difficult to teach.

First, we cannot use the Kelly Criterion directly because, unlike blackjack, where risk management tools are easy to apply (every bet is resolved before the next one, and the most you have riding is potentially eight bets when you split four times and double on each of them), trading is much more dynamic. Even if these are max bets, a well-seasoned pro is working with 250 to 500 max bets.

While we are at it, let us have a quick blackjack lesson.

First, it is rare to have four splits and then even rarer to double all of them. When you do, you are at an advantage with each of those doubles. Offensive splits are those like 77 vs. 5, for example. Defensive splits are those like 88 against a 10. There is a reason it is called defensive. You lose less by splitting than by not splitting. Why? Here is the intuition. (The proof is much harder—you need to do combinatorial analysis for all the possible scenarios, and computers do it for you.) On the rare occasion you get a 3 on your 8, the hand becomes positive against the 10.

In trading, you have to decide when to take the win or the loss (unless every trade is sized for maximum loss. If you are one of those, please comment and tell me how you do it.)

However, the pros have given clues and ways to understand a pathway to figure it out. For one, position sizing is somewhat personal because risk is personal.

The way I have started identifying position sizing is through the different market conditions. In a gangbuster bullish market, you can have more calls, and in somewhat bullish stocks, you can still do CDS (especially when the skews are high to sell the short strike). Then you can be more defensive when the market is slightly bullish to neutral by selling puts or selling PCS.

The other reason is that, for a nimble trader, a bigger position is more sustainable. For a highly skilled trader, a bigger position is more sustainable. So there is a compounding effect here—the better the trader, the bigger the position size, since the trader can be better at identifying the best setups and exiting those setups. Also, a better trader can hedge more quickly.

The next one is how good you are at estimating your own skill. If you underestimate it, you might be more defensive than necessary and leave money on the table (the better option) than if you overestimate it and get pulverized.

Risk appetite + market conditions + skill + honesty about your skill all compound.

In blackjack, this means identifying the most tolerant casino in the region, playing the best shift, finding the fastest dealer heads-up, managing the session win without attracting attention, having enough chips so you do not have to CTR and provide ID, and knowing if the casino has access to OSN (some don't use it, some use it but do not update it, some update it but won't create a fresh entry, and the most notorious will create fresh entries for someone who is not in it at all).

For the experienced traders here, what was the biggest breakthrough that helped you determine your own position sizing? Was it market conditions, experience, fixed rules, or something else? I would genuinely love to hear the different approaches because I think this is one area where there is still so much potential to learn.

Thank you for reading and see you in the comments!

Machine Vulturing

Machine play (vulturing) is the easiest way for many people to build and grow a bankroll. It is particularly well-suited for low and micro bankrolls because it offers a high edge with relatively low variance. As a result, it attracts massive competition.

The math guys identify the edges, determine the entry and exit points, and then others execute the plays to the letter. Vulturing rewards discipline and execution more than creativity or deep understanding.

 

Blackjack

Blackjack is a higher-skill game. While there are multiple ways to obtain an edge—counting, shuffle tracking, ace sequencing, hole carding, special promotions such as 2:1 blackjack or 2:1 suited blackjack, and in rare cases edge sorting—most people think of card counting when edge is mentioned.

There is a major jump in skill from machine vulturing. A player needs to understand how the game works and where the edge comes from. For example, the fact that if you bust, you have already lost even if the dealer subsequently busts contributes more than 6% to the house edge. Other player-favorable rules such as 3:2 blackjack payouts, doubling, splitting, surrender, and the ability to vary bets reduce that edge to approximately 0.5% in most standard 3:2 blackjack games.

The progression in blackjack is learning basic strategy, understanding why counting works, then learning to count and adjust for the running count and true count, varying betting and playing decisions based on the true count, and managing risk using a predetermined betting structure. One may also adjust sizing after significant drawdowns. For example, if you lose 10% of your bankroll, you might resize everything downward, especially if the bankroll is non-replenishable.

However, the reality of blackjack is that most players quickly hit realistic betting limits of 2×450 (betting two hands of $450 to keep bets under $500) or, in some cases, 2×800 (keeping bets under $1,000 and avoiding the psychological threshold that often triggers additional scrutiny). This means that a bankroll in the low six figures, say $250,000, can become quite comfortable for a player. Even a $50,000 bankroll may be sufficient to generate something in the region of $100/hour  with careful game selection.

The opponent, the dealer, plays by a fixed set of rules known beforehand. The rules may vary slightly—for example, whether the dealer hits soft 17 or stands on soft 17—but they are known in advance nevertheless.

The real challenge is getting money on the table and figuring out the best way to attack a game. Do you go for the throat and bet 2×1,500, or do you keep it at 2×400 and last longer?

The major attributes are:

1.   Tolerance

2.   Bet spread

3.   Game speed

4.   Deck penetration

5.   Rules

Tolerance and bet spread are related but not identical. A casino may be tolerant of a large lifetime win, but the floor may still be required to call surveillance if you bet more than $500 or if your session win exceeds $5,000. Another casino may tolerate any bet spread but focus heavily on session wins.A bet spread is just the ratio of your top bet to your bottom bet. If your max bet is 400 and min is 25, your spread is 1-16. Theoretically you would never play when the count is negative or even netural and only play when you have an edge so then you could have an infinite spread (difficult in practice to implement but one does need to take bathroom breaks or take phone calls that can be timed well) but there is a casino where you could (without any heat from the casino) avoid playing when the odds are not in your favor and play only when it is in your favor-ofcourse I am referring to the stock market and I digress here..sorry about that.

 

Game speed is controlled by the number of players, the dealer's dealing speed, and whether the casino uses hand shuffles or an ASM (Automatic Shuffling Machine). You almost never want to play a CSM (Continuous Shuffling Machine). Heads up (just you and the dealer) one could get 250 rounds an hour while a full tablewith side bets ,hand shuffle and a chatty dealer could give you 50 rounds/hr crushing your EV/hr.  But you might have to wake up at 4 am to get heads up play but nobody said this was easy either. (Graveyard shift 2-10 am or 4-noon is also low heat in many places as a side note).

 

Deck penetration refers to what percentage of a double-deck, four-deck, or six-deck shoe is dealt before the shuffle. A 50% double-deck game is barely playable, 60% is good, 75% is excellent, and 85% is mouth-watering. For six-deck games, 75% is playable, 83% is excellent, and 92% is mouth-watering.

Rules matter, but only to the extent that the house edge is controlled to a reasonable level, around 0.5% or so. The other factors often matter more. If a casino is relaxed despite having a 0.6% house edge because the game is H17, DOA, DAS, nRSA, and nLS (Hit Soft 17, Double on Any Two Cards, Double After Split, No Resplitting Aces, and No Late Surrender), I would gladly take it because tolerance matters more than minor rule differences.

 

Blackjack Versus Trading

This is all a long winded way of saying that blackjack is much easier to master than the dynamic elements of trading. In trading, you need to understand what kind of market you have had, what kind of market you have now, and understand price action deeply enough to gauge what may happen next and how you will react.

I have learned that understanding the environment is extremely crucial to survival. It determines how aggressive you can be on the spectrum of buying calls, buying call spreads, buying stock, selling puts, and selling put spreads. It also determines how much exposure you should have in different long strategies and how aggressive you can be in any individual stock.

This understanding has to be learned through experience. It requires being nimble enough to adjust and manage positions when things move in your favor or against you. It requires planning what you will do in either scenario and, at times, giving a trade less time or more time based on new information revealed through price action.

All of these concepts have parallels in blackjack, but on a much smaller scale. Mistakes in comportment, a lack of cover play, and playing like a robot will all ensure that you are asked to leave much sooner than a more creative player. However, the detrimental effects are far smaller.

The uncreative and non-nimble/stubborn blackjack player who cannot dynamically adjust, or who is unwilling to occasionally play a few negative-EV hands when a counter-catcher is sent to count him down, is unlikely to make seven figures. However, he can often make up for these shortcomings with hustle, a willingness to travel, cheap accommodations, and a determination to outwork everyone else.

A stubborn trader has no such luxury.

A trader who stubbornly holds onto his position and is unwilling to change his mind is quite often dead- not only in his portfolio, but also in his confidence. Eventually, he finds himself relegated to the bottom 90% of traders and dies a slow painful death.

 

So what attracts a blackjack player to trading?

Blackjack- A medium bar for success and a higher bar for greater success and a cap on it after that.

Trading- A much higher bar for success and a much much higher ceiling if you are that good.

Example- In blackjack, one could make $50/hr fairly easily in EV (as long as you could tolerate 20x your EV in fluctuation) while it is very hard to get above the $200-250/hr in EV while getting time in casinos. In fact I would say 1k a day is probably what very skilled pros make while handling expenses and car rentals and trying to keep them under 15-20%. Most pros once they have made about a million lifetime would be fairly well known and find it harder and harder to succeed.

 

The compounding effect isn’t that great in blackjack:

Common Progression in blackjack:

Skilled card counter low stakes(2*100 top bet) -> Skilled card counter (2*300 top bet)- > Skilled card counter high stakes player( 2*450 top bet)- > Skilled card counter very high stakes (2*800 top bet) -> Skilled card counter Nuclear high stakes (2*1500 top bet) . Quite often the pro will move down to 2*450 for the sake of longevity and grind it out in her later years. The accumulated knowledge, the expanding experience of playing over a decade and moving into multiple decades,  almost complete understanding of the cat and mouse game all of it would struggle to move the needly beyond a point.Why?

 In this, the player who is medium stakes or higher usually gets databased by casinos and this marks the first step in her getting lower hours based on name/face in the future. There after there is a race between the player getting more skilled in cover play, avoiding providing name, using disguises, friend’s players card etc…. versus casinos knowing more about her and either adding to the database or fliering her picture to the nearby casinos.

 

In trading, conditional on survival, everything compounds. Every mistake you conquer, every mindset you change positively compounds on top of each other so you become better everytime there is a shift. Everytime a concept that Pete(From OneOption) or Hariseldon (from Realdaytrading) or DaveWyse(from Rightlinetrading)  teaches that hits home, you become that bit better. The challenge is there is no paucity of things to overcome but the longer you somehow manage to somehow stay afloat, the higher the chances of one day getting past the bottom 90% and maybe even past the bottom 95%,96% and who knows maybe the bottom 99%.

Hope you enjoyed reading it as much as I enjoyed writing it. Will try to follow it up with another one if there is interest.

 

https://preview.redd.it/ne14r916jj8h1.png?width=468&format=png&auto=webp&s=aa4c1180d71d21135f846fbebaedb8c0f9701e56

Machine Vulturing

Machine play (vulturing) is the easiest way for many people to build and grow a bankroll. It is particularly well-suited for low and micro bankrolls because it offers a high edge with relatively low variance. As a result, it attracts massive competition.

The math guys identify the edges, determine the entry and exit points, and then others execute the plays to the letter. Vulturing rewards discipline and execution more than creativity or deep understanding.

 

Blackjack

Blackjack is a higher-skill game. While there are multiple ways to obtain an edge—counting, shuffle tracking, ace sequencing, hole carding, special promotions such as 2:1 blackjack or 2:1 suited blackjack, and in rare cases edge sorting—most people think of card counting when edge is mentioned.

There is a major jump in skill from machine vulturing. A player needs to understand how the game works and where the edge comes from. For example, the fact that if you bust, you have already lost even if the dealer subsequently busts contributes more than 6% to the house edge. Other player-favorable rules such as 3:2 blackjack payouts, doubling, splitting, surrender, and the ability to vary bets reduce that edge to approximately 0.5% in most standard 3:2 blackjack games.

The progression in blackjack is learning basic strategy, understanding why counting works, then learning to count and adjust for the running count and true count, varying betting and playing decisions based on the true count, and managing risk using a predetermined betting structure. One may also adjust sizing after significant drawdowns. For example, if you lose 10% of your bankroll, you might resize everything downward, especially if the bankroll is non-replenishable.

However, the reality of blackjack is that most players quickly hit realistic betting limits of 2×450 (betting two hands of $450 to keep bets under $500) or, in some cases, 2×800 (keeping bets under $1,000 and avoiding the psychological threshold that often triggers additional scrutiny). This means that a bankroll in the low six figures, say $250,000, can become quite comfortable for a player. Even a $50,000 bankroll may be sufficient to generate something in the region of $100/hour  with careful game selection.

The opponent, the dealer, plays by a fixed set of rules known beforehand. The rules may vary slightly—for example, whether the dealer hits soft 17 or stands on soft 17—but they are known in advance nevertheless.

The real challenge is getting money on the table and figuring out the best way to attack a game. Do you go for the throat and bet 2×1,500, or do you keep it at 2×400 and last longer?

The major attributes are:

1.   Tolerance

2.   Bet spread

3.   Game speed

4.   Deck penetration

5.   Rules

Tolerance and bet spread are related but not identical. A casino may be tolerant of a large lifetime win, but the floor may still be required to call surveillance if you bet more than $500 or if your session win exceeds $5,000. Another casino may tolerate any bet spread but focus heavily on session wins.A bet spread is just the ratio of your top bet to your bottom bet. If your max bet is 400 and min is 25, your spread is 1-16. Theoretically you would never play when the count is negative or even netural and only play when you have an edge so then you could have an infinite spread (difficult in practice to implement but one does need to take bathroom breaks or take phone calls that can be timed well) but there is a casino where you could (without any heat from the casino) avoid playing when the odds are not in your favor and play only when it is in your favor-ofcourse I am referring to the stock market and I digress here..sorry about that.

 

Game speed is controlled by the number of players, the dealer's dealing speed, and whether the casino uses hand shuffles or an ASM (Automatic Shuffling Machine). You almost never want to play a CSM (Continuous Shuffling Machine). Heads up (just you and the dealer) one could get 250 rounds an hour while a full tablewith side bets ,hand shuffle and a chatty dealer could give you 50 rounds/hr crushing your EV/hr.  But you might have to wake up at 4 am to get heads up play but nobody said this was easy either. (Graveyard shift 2-10 am or 4-noon is also low heat in many places as a side note).

 

Deck penetration refers to what percentage of a double-deck, four-deck, or six-deck shoe is dealt before the shuffle. A 50% double-deck game is barely playable, 60% is good, 75% is excellent, and 85% is mouth-watering. For six-deck games, 75% is playable, 83% is excellent, and 92% is mouth-watering.

Rules matter, but only to the extent that the house edge is controlled to a reasonable level, around 0.5% or so. The other factors often matter more. If a casino is relaxed despite having a 0.6% house edge because the game is H17, DOA, DAS, nRSA, and nLS (Hit Soft 17, Double on Any Two Cards, Double After Split, No Resplitting Aces, and No Late Surrender), I would gladly take it because tolerance matters more than minor rule differences.

 

Blackjack Versus Trading

This is all a long winded way of saying that blackjack is much easier to master than the dynamic elements of trading. In trading, you need to understand what kind of market you have had, what kind of market you have now, and understand price action deeply enough to gauge what may happen next and how you will react.

I have learned that understanding the environment is extremely crucial to survival. It determines how aggressive you can be on the spectrum of buying calls, buying call spreads, buying stock, selling puts, and selling put spreads. It also determines how much exposure you should have in different long strategies and how aggressive you can be in any individual stock.

This understanding has to be learned through experience. It requires being nimble enough to adjust and manage positions when things move in your favor or against you. It requires planning what you will do in either scenario and, at times, giving a trade less time or more time based on new information revealed through price action.

All of these concepts have parallels in blackjack, but on a much smaller scale. Mistakes in comportment, a lack of cover play, and playing like a robot will all ensure that you are asked to leave much sooner than a more creative player. However, the detrimental effects are far smaller.

The uncreative and non-nimble/stubborn blackjack player who cannot dynamically adjust, or who is unwilling to occasionally play a few negative-EV hands when a counter-catcher is sent to count him down, is unlikely to make seven figures. However, he can often make up for these shortcomings with hustle, a willingness to travel, cheap accommodations, and a determination to outwork everyone else.

A stubborn trader has no such luxury.

A trader who stubbornly holds onto his position and is unwilling to change his mind is quite often dead- not only in his portfolio, but also in his confidence. Eventually, he finds himself relegated to the bottom 90% of traders and dies a slow painful death.

 

So what attracts a blackjack player to trading?

Blackjack- A medium bar for success and a higher bar for greater success and a cap on it after that.

Trading- A much higher bar for success and a much much higher ceiling if you are that good.

Example- In blackjack, one could make $50/hr fairly easily in EV (as long as you could tolerate 20x your EV in fluctuation) while it is very hard to get above the $200-250/hr in EV while getting time in casinos. In fact I would say 1k a day is probably what very skilled pros make while handling expenses and car rentals and trying to keep them under 15-20%. Most pros once they have made about a million lifetime would be fairly well known and find it harder and harder to succeed.

 

The compounding effect isn’t that great in blackjack:

Common Progression in blackjack:

Skilled card counter low stakes(2*100 top bet) -> Skilled card counter (2*300 top bet)- > Skilled card counter high stakes player( 2*450 top bet)- > Skilled card counter very high stakes (2*800 top bet) -> Skilled card counter Nuclear high stakes (2*1500 top bet) . Quite often the pro will move down to 2*450 for the sake of longevity and grind it out in her later years. The accumulated knowledge, the expanding experience of playing over a decade and moving into multiple decades,  almost complete understanding of the cat and mouse game all of it would struggle to move the needly beyond a point.Why?

 In this, the player who is medium stakes or higher usually gets databased by casinos and this marks the first step in her getting lower hours based on name/face in the future. There after there is a race between the player getting more skilled in cover play, avoiding providing name, using disguises, friend’s players card etc…. versus casinos knowing more about her and either adding to the database or fliering her picture to the nearby casinos.

 

In trading, conditional on survival, everything compounds. Every mistake you conquer, every mindset you change positively compounds on top of each other so you become better everytime there is a shift. Everytime a concept that Pete(From OneOption) or Hariseldon (from Realdaytrading) or DaveWyse(from Rightlinetrading)  teaches that hits home, you become that bit better. The challenge is there is no paucity of things to overcome but the longer you somehow manage to somehow stay afloat, the higher the chances of one day getting past the bottom 90% and maybe even past the bottom 95%,96% and who knows maybe the bottom 99%.

Hope you enjoyed reading it as much as I enjoyed writing it. Will try to follow it up with another one if there is interest.

 

 

 

Hey everyone! I'm u/Billabongbologanesh, a founding moderator of r/BlackjackAndTrading.

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