Managing Heat in Blackjack Analogous to Managing Risk in Trading
"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!