Can a Game Realistically Help You Make Millions On The Stock Market?
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If you’re a successful blackjack player, you’d probably make a great trader. Why?
There have been quite a few card players that have made fortunes and achieved fame after they got into trading. Look up Blair Hull and Ed Thorp to see for yourself.
They didn’t get there by accident. Blackjack and trading require a similar set of skills to succeed. These traits can be learned — nobody’s born with them.
Knowledge and discipline
As a trader, you need to mitigate your risks to avoid going bust.
To be successful in either gambling or trading, you have to develop a solid knowledge base — understanding how things work and being able to separate myths from reality — and the strength to leave your emotions aside and stick to a strategy.
Remember: following any strategy is better than having no strategy at all.
This rule perfectly describes the importance of money management. Going all-in every time is not the way forward long-term. Sooner or later your luck will run out.
Similarly, as a trader, you need to mitigate your risks to avoid going bust. It may seem a good idea to bet all your money on one stock. But this is the equivalent of going all-in.
Even if a stock looks solid and fail-safe, tempting you to invest all your money, diversifying your portfolio is a smarter strategy. Even if you get it wrong once, your other bets keep you in the game.
It is estimated that approximately 95% of gamblers and traders lose. That happens because almost everybody follows the same news, rumors, beliefs and follows the crowd. Let’s take sports betting for example. It has been analyzed throughout the decades that the vast majority of bettors are constantly backing the favorites.
They go with most likely outcome — not realizing that this is the sure way to skip value. So what is Value?
When you back the favorite in the race, you’re likely to be offered poor odds. When you buy the stock everyone sees as a winner, it’s likely to be overpriced.
Spotting value means identifying when your chances of winning are better than the odds suggest. This is what card counting in blackjack is all about. Knowing when to take the risk is the key element of both blackjack and trading success.
The following video explains both the basic rules of blackjack and some advanced strategies based on identifying value:
“Both games of chance and the free market depend on a kind of controlled randomness in which no individual has an unfair advantage,” says Thomas Crain of John Hopkins University.
95 percent of gamblers lose money. Why shoudln't you?
His point stands as long as none of the individuals is cheating. Card counting relies on speculating the moments when the deck is more likely to deliver winning cards to the players. Basically, you’re identifying the moments when you have the edge — and not the house.
Card counting is illegal because the casinos consider it cheating. Applying the same principles to trading can earn you a lot more. The best part? Seeking value is perfectly legal in the trading world.
Ed Thorp, also maths professor as well as blackjack player and trader, finds value using the Kelly Criterion, establishing the right size of stake based on odds of winning or losing. He applies it to all forms of gambling with an incredible track record.
Why blackjack can help you succeed in trading
1. You can’t always win.
You won’t win every hand, but the important thing is to earn a profit at the end of the month and never chase your losses. Both blackjack players and traders know this. The experts rapidly stop their losses and don’t let things get out of control.
2. Only bet on value.
This is why card counting is illegal. Blackjack winners only bet when they have the edge on the house. Experienced traders don’t gamble. They won’t buy unless they know they’ve found value.
3. Be brave, but disciplined.
Both blackjack players and traders must increase their stakes when the opportunity arises - there’s no other way to profit from the value they find. But they always stick to their money management plan and know when to fold.
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