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A Good Lesson From Hedge Manager

H

hermes

My name is R..... and I run a successful hedge fund that trades financial products.

I've gleaned through & absorbed many useful ideas (as advised by Punvit) & would like to share what I've learned through my successful trading career & one as a profitable baccarat player. After all, this is the purpose of this forum - exchange of ideas.

Therefore here is my 2 cents worth:

Trading vs Baccarat
Perhaps I should start with drawing analogies from managing a hedge fund to that of playing baccarat. As you read on, I hope the equivalence in the 2 above-mentioned activities will improve both you & me as a baccarat player.

Why 90% of traders lose $?
From my experience in trading, the formula to LOSE $ in trading is to do as follows:

1. Priorities on entries into investments (when to get in)
2. Followed by finding a way to exit investments (when to get out)
3. Places least importance to money management (how much to bet)

What 10% of profitable traders do to make $?
And this is what profitable traders do to WIN $:

1. We focus primarily on money management (how much to bet)
2. We then focus our attention to exits (when to get out)
3. Lastly we focus on when to get into investments (when to get in)

The reasons are simple:
1. Why money management first?
We want to have enough bankroll to trade forever. With the best trade exits & entries, a lousy money management strategy will not enable us to trade forever.

2. Why focus on exits rather then entries?
If you know when to get out, you will have the discipline & confidence to get in. This serves as an extremely important psychological advantage to profitable traders.

3. Why entries last?
Because if you have the first 2, this is the simplest.

Applying trading to baccarat
How did I become a profitable baccarat player? I applied the above rules! MM first, exits second, entries last.

The following will be guidelines for you to find your own formula. I rather not share my exact rules. It is the same when I teach my traders. With the guiding principles that I am going to give, modify them to suit your own style. Because you follow what is yours more than what belongs to others. This is another psychological edge we can have over the casinos. Get your hands dirty & work!

Here are my 2 cents worth of guidelines:
1. Money management
Have enough to play through at least 50 consecutive losses. As a profitable trader, I still do experience 10-20 consecutive losses once in a while before I recover.

Plan your bets in a way that functions like a rubber band: If you lose 30 times consecutively, get them back in less than 20 times. Am I suggesting a negative progression? Yes you are right! Think why casinos place a maximum bet limit - because gamblers who vary their bets win! I typically do a 1-2 progression. No more! You don't have to get everything recovered in 1 bet. You have your lifetime to recover!

2. Exits
I plan my exits before I walk into the casino. And I work based on a principle that works extremely well for me in trading - trailing stops.

For example, I would bring 3 sets of 3 units into the casino. Each set per shoe. Since I do a 1-2 progression, I would bet on my trigger until I experience 2 consecutive losses in a shoe. And I will move over to a new shoe. I would play 3 shoes each session. My max loss is -9 units/session. My max gain? I let it ride! It has worked so far.

3. Entries
I've heard so many people tell me each new game is 50/50. My advice is this - if you think its 50/50 or even a negative expectancy, DON'T PLAY.

So am I suggesting what i have has a positive expectancy? I BELIEVE so. Not because I have proven it theoretically, but it has practically made me $.

Think about it. Who has truly proven that gambler's fallacy is unworkable practically? Think about it. There are practically billions & billions of games being played since baccarat started. But what is the longest streak of something (be it B or P or singles, doubles etc.) that has been recorded? If each new game is independent, why not 1000 players, bankers or singles or doubles in a row, since our sample size of games are well into the billions or even zillions?

I'm a player that exploits variance or standard deviation. Basically, I play break of trends. Give you an example. BBBBBBBBP. I will play P on the next hand. Why? What is the variance or SD here? Variance = 9*0.5*0.5= 2.25. SD = 1.5. 8 bankers vs 1 player. We have nett 7 bankers. That is a whopping 4.67 SD from the mean! That is close to 100% confidence interval. Is this the only way I play? Nope! But the idea is there.

Conclusion
Trading & baccarat is not much different. But just focus on the profitable side of the curve. MM first, exits second, entries last. Keep it simple. Cheers!

I apologize to this bright mind hedge fund manager guy but I couldn't resist to brake the copyright!
I hope he will not sue me.
Cheers Hermes
 

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