In Part I of this series I just
expressed my introductory comments on gambling. Today I'm going to dive a bit
into some of the various strategies that I know people follow when they enter a
casino.
To begin with today let's look at
how people gamble in a pure half-and-half type event. By this I mean an even
like a red and black of a roulette table or an odd number in a dice, or a tails
in a coin. This is the most basic version.
One must note that odd and even
actually do not alternate in a roulette table and hence if this strategy is
applied to odd and even it might or might not work.
The Martingale Strategy
This is the most famous and most
practically applied strategies known. The strategy in itself is quite simple.
We start with betting the lowest position denomination on an even. If we lose,
we double our bet the next time and if we win we start from the top again. Let
me illustrate. Assume the lowest bet can be made for 10 dollars. So we bet 10
dollars on red in a roulette table. If we win, we keep our winnings of 10
dollar and bet 10 dollar again. If we lose, we bet 20 dollar this time. If we
now win, we are going to keep our 30 dollar (out of the 40 won in total) and
restart with 10 dollar bet. However, if we had lost this time, we would have to
now bet 40 dollar (double of 20).
The Logic behind the strategy is
that eventually we are going to win, and when that happens we want to be able
to win back all the money we lost while betting (10 + 20 + 40) and some (+10 =
80).
Why doesn't everybody use it then?
Because casinos also know that this
method if fully implementable can make them lose money, and a lot of it. So
what do they do? They tweak the constraints a bit. They will put an upper limit
on the bet. A simple tweak like this is going to turn the odds again in their
favor against this strategy. Let's say the upper limit is 10000 dollars for a
single bet in a casino. That means after lose a particular number of times and
betting
10+20+40+80+160+320+640+1280+2560+5120
= 10230,
the gambler would only be able to
bet 10000 (the upper limit). Consequently, he can only win 20000, and so still
losing 230 dollars. And if he doesn't win on this bet, he is going to lose a
lot of money without a chance of making it back soon. So, this simple
constraint actually does a lot of good for casinos and keeps guys away from
running this strategy. One might argue that this requires losing 10 times in a
row, and it won't always happen. True, it won't always happen but when it does
it is going to create big losers and hence big money for the casinos.
The Anti-Martingale Strategy
The biggest problem with the
martingale strategy is that the winnings are quite limited (10 dollar for the
above case) for each run, while the betting amount goes exponentially very
quickly. My personal experience was when implementing Martingale the machine
gave up on me and stopped accepting my notes when I had to bet, so i can't
start from that point again and whatever money is gone is gone. This risk
return doesn't look attractive to some people and actually it makes sense too.
So some people drew a learning from trading, the very famous saying of cutting
your losers and let your winners run. This is how this strategy works. You
start by putting in 10 dollars into red let's assume. If you win, you are going
to put in the 20 (initial amount of 10 and the winning of 10 both). So, the
next time you have bet higher, you are going to win higher (40) if you win,
while your overall risk is still limited to your initial investment of 10
dollars. This looks very attractive in theory. If you lose in the first run
itself, you still bet 10 dollars again and don't increase the risk amount
exponentially like in the case of martingale strategy.
The crucial thing that people forget
about when using the anti-martingale strategy is when to take profits. Sure,
the idea sounds good that even when you are betting 20 your initial risk is
still 10 but the reality is you are going to win 40 and then bet 40 again to
win 80 and then bet 80 again to finally lose. Net net you did not make any
money. So, it’s important to have a target profit in mind where you start again
from the top (10 dollars).
The Anti-Martingale Variant
The drawback with vanilla martingale
strategy is that it’s not clearly defined on when to book profits. To overcome
this, people use some other variants. One of the most common one is to keep
taking some profits off the table and let the strategy run. In this case if you
are putting 10 dollar and winning 20, you are going to keep 5 to yourself and
then going to bet 15 the next time. Then if you win again you are going to keep
maybe 8 dollars to yourself and bet 22 again. This way you are making sure you
keep increasing your earnings while 'letting your profits run'. This is
actually closer to the real trading strategies, where only a tight risk
management can make money consistently in the long run. When you are betting
the entire amount again, this is not risk management as you are effectively
increasing risk after your winnings.
Today we looked at three basic
strategies. In part III, we are going to further explore some other strategies
that are used while in casinos.
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