Like other things in life, crypto trading requires cool-head decisions, calculated strategies and exquisite self-control. There’s obviously a mathematical edge to consider as well, which is usually directly proportional to the rewards. Indeed, probability is just as important in the process.
From many perspectives, crypto trading techniques are similar to strategies employed in blackjack. It may sound irrelevant, but while different, both concepts feature risk, rewards, a bit of math and a certain degree of probability.
With this thought in mind, let’s see what crypto traders can learn from the most successful blackjack strategies out there.
Calculated Risk in Cryptocurrency Investing
The process involves using available data (such as stats, volatility, historical data, performance and so on) to measure possible losses against possible wins. Most of this research is conducted prior to making the trade. It could also be seen as setting a strategy, as you’ll need some predetermined exit points too.
Calculated risk in crypto investing consists of more parts, such as:
- The risk/reward ratio, which measures potential profits against what you might be able to lose. For example, if the ratio is 1:3, you’re taking quite a risk.
- Stop/loss orders allow you to sell some coins when the value drops below a particular level. In other words, you’re cutting your losses.
- Positing sizing is about figuring out the total amount of capital to invest in a single coin according to the risk tolerance. It’s a matter of preventing the idea of making random investments.
It’s also worth noting the 1% rule, which is fairly common in making crypto investments. The strategy allows you to limit possible losses on a trade to not more than 1% of your portfolio. You can go below 1%, but you can’t go above it.
While these rules are strictly related to cryptocurrency investing, if you’re familiar with blackjack and other casino games, you can clearly see some similarities, at least in terms of risk prevention.
Understanding Expected Value in Trading and Casino Games
In crypto trading, EV (expected value) is important in evaluating strategies, investments and decisions, especially in markets with a high degree of volatility.
A trader can use expected value to determine if a trade has positive expectations once all fees are paid. Sometimes, a small gain in a low-expectation trade may not be as good as a big gain in a high-expectation trade. While there’s a risk of failing, it looks more beneficial.
When it comes to casino games, expected value helps you understand whether a bet is worth the risk. The process assesses the probability of winning, but also the possible payout.
In general, most casino games have a negative expected value. There’s a house edge, so the expected value is normally positive for the casino, meaning it’s usually negative for players. It’s not a general rule, as deeper research can still help you reach positive expected value.
Blackjack Strategy Charts as a Case Study in Optimized Decisions
Moving on with the concept of expected value, on average, traditional casinos have an 8% edge over you. If you like blackjack, a blackjack chart allows you to optimize your strategy and reduce the house edge. In some cases, it may go as low as 0.2%.
It won’t necessarily be positive, but it means the risk is dramatically reduced.
Blackjack charts also depend on the dealer’s position. You’ll know when to split, when to hit, when to double and so on.
From the same perspective, this concept can be systematically applied to crypto trading as well. Trades provide potentially higher expected value because there’s more research involved, as well as more possibilities to reduce the risk.
If you can reduce the expected value to 0.2% in a casino, imagine the benefits you’d gain in cryptocurrency trading.
Portfolio Allocation Vs. Bet Sizing: Strategic Comparisons
Both aspects are part of risk management and investment, yet there are strict differences between them.
Portfolio allocation can be seen as the framework. This is the strategic decision of dividing your assets over more classes. When it comes to crypto trading, you could invest in more coins. When it comes to investing in general, you can go from stocks to futures and so on.
The goal of portfolio allocation is to mitigate risk and diversify assets.
Bet sizing, on the other hand, can be seen as the execution. It’s a tactical decision that helps you figure out the capital allocated to a certain coin. Unlike the portfolio allocation, its goal involves maximizing the compounding growth rate.
Simply put, you can bet more when there’s a higher chance to win, but also less when the risk is higher.
Which one to use depends on the risk, the role of conviction and survival on the market.
Discipline and Long-Term Probability Thinking
In both crypto trading and blackjack (as well as other casino games), you’ll realize that discipline is critical. You win some, you lose some. The idea is to ensure your wins outweigh your losses. If they don’t, you have to keep cool and stick to your strategy, even if it feels like you’re going down.
Long-term probability thinking applies to both aspects. You’ll need to make decisions based on the expected value, which is a mathematical concept. You need to check this in terms of statistics:
- Thousands of trades in crypto trading, plenty of data, stats and probabilities
- Thousands of hands and probabilities in terms of getting the right hand
There are mental and emotional traps in both trading and blackjack. From loss aversion to the martingale myth, these issues won’t get you too far when it comes to spending your own money.
As a short final conclusion, research, data, statistics and excellent self-control are some of the winning elements in both casino games and trading.
While these concepts seem completely different, they actually have lots of similarities in reality. It’s not just about spending your own money and taking a risk, but also about learning how to calculate this risk in order to keep it to a minimum value.
