This weekend I was invited by Intershow and the CME Group to speak at the Forex Trading Expo in Las Vegas. I've only been to Las Vegas once before, and all the gambling and casinos fascinate me.

I don't gamble. As a trader, I want to control my risk and - even more importantly - have an edge. If you are playing roulette or the slow machines, you definitely don't have an edge, but what about Black Jack? As far as I know Black Jack is the only game with changing probabilities throughout the game, so I asked myself: Is it possible to apply solid trading techniques to the game to gain an edge?

When I am playing the money game, I am playing it to win, so I approached my "Black Jack Adventure" in a systematic way:

1.) Learning the rules
Whether you are trading or gambling, you need to know the rules. Of course I am familiar with the basic rules: Each card has an assigned value and you win if your cards show more points then the dealer, but less than 21. These are the basic rules, but there are some twists: You can split, double or even insure a hand. Some casinos allow you to split hands multiple time and doubling after a split, while other don't. It's important to know what you can do and what you can't do, since it can improve your odds and will definitely impact the strategy you choose.

2.) Finding a strategy
The payout in Black Jack is quite simple: If you win, you get the same amount that you risked, unless you have a Black Jack (Ace and a face card): In this case you win twice as much as you risked. I don't like this kind of risk management: When trading, I am trying to make at least $1.50 for every dollar that I risk. Knowing that the risk-reward-ratio in Black Jack is typically only 1:1 I had to find a strategy that produce more than a 50% winning percentage. After familiarizing myself with the basic rules and the strategy that the dealer uses ("Draw until 17, then stop"), I learned that I would have only a winning percentage of 45% if I mimicked the dealer's strategy. With this strategy it is impossible to win in the long run. I spent two more hours surfing the internet and learning some more advanced strategies, and I finally found one than gave me a winning percentage of 49.5%. Still not enough, but what if I applied some other trading techniques like sound money management? Would I be able to win in the long run?

3.) Testing the strategy.
It wasn't difficult to find a Black Jack simulator on the Internet. I wanted to test three different strategies:

1. No strategy at all and just using my "intuition". Who knows, maybe I am the greatest Black Jack Player in the world
2. A simple strategy that was easy to memorize
3. A more complicated strategy that required the use of a cheat sheet. Most probably the casinos wouldn't allow it, but I wanted to see if a more complicated strategy would perform much better than a simple strategy. As you know, I believe in simple strategies.

I decided to play each strategy for approx. 30 min. My goal was to make 40 plays so that I can get statistically relevant results. I used $1,000 as a starting capital and played a minimum of $10. I thought that these conditions came closest to the reality.

4.) Evaluating the results
Here are the results after 40 plays:

1. Strategy: 24 losses, 16 wins. Total loss -$120, since I doubled and split when I shouldn't have. Seems that I am not the greatest intuitive Black Jack Player in the world.
2. Strategy: 19 losses, 21 wins. Total Profit: $20. I was luck on the last couple of trades, so I could end on a winning streak.
3. Strategy: 20 losses, 20 wins: Total Profit: $20. Over 40 simulated trades the complicated strategy does not seem to produce significantly better results, but it took me much longer to simulate the 40 trades, since I constantly searched the cheat sheet for the best next move. Doesn't seem to be worth spending days to memorize the strategy.

5.) Improving the strategy
Is it possible to improve this simple Black Jack strategy? What if I set myself a profit target and walked away? Or should I use Martingale Systems to play a losing streak? Could I just skip a play when I thought the odds were not in my favor, e.g. after a hand with a lot of face cards? I researched the internet for answers to these questions and it seems that there is a modified Martingale System that has helped several professional players to make money in the long run. However, this money management strategy is rather complicated and many players admitted that they lost count during their plays which resulted in losses. Since I didn't want to spend days to learn how to make money in Black Jack, I decided to skip learning and testing this strategy.

The result: It seems that I could play Black Jack for an extended period of time and break even. Considering that the casinos offer free drinks while playing, this could be considered a winning situation, since I could play for free drinks. However, watching other players it seems that after approx. 1 hour of drinking you lose the ability to follow your strategy. :-))

Bottom Line:
This weekend I decided NOT to play Black Jack. I simply don't like the fact that I would play it without a profitable strategy. That's against everything I teach and do. But it's good to know that I could play without losing my shirt. I'll let you know what I decide to do when I am back in Las Vegas in November for the Trading Expo.

Was THIS the right decision? - Leave a comment!