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Variance and Money Management

Statistical Fluctuations

Fluctuations are real and they always occur in the game of blackjack. Even if you do not understand the details of statistical fluctuations, you must admit to yourself that THEY DO OCCUR and that it will happen to you. If you have a 1% advantage, you probably will not win 1% of your bets every night, every weekend, every week or perhaps even in a year of part-time play. In the short-term you will experience positive fluctuations and negative fluctuations. Not until you approach the long run will you become statistically close to actually winning the amount of your advantage.

No matter how good you are, no matter how much of an advantage you have, you will have losing streaks. I repeat, YOU WILL HAVE LOSING STREAKS. You will have some bad ones and if you play long enough, some really bad ones. Expect them and prepare to deal with them. You may be the best card counter in the world, but if you don't know the basic of money management you face a good chance of going broke and not being able to continue playing. Thus, the most important goal is to be able to keep playing. You won't win every battle, but in the long run, you will win the war.

Remember

You will have losing streaks. Expect them and be prepared to ride them out.

 

Managing your money

As a result of the statistical variance that all players will eventually have to face, money management becomes an important concept that you require to make yourself a successful player. If you can't afford to lose the money you are playing with, then you should not play. The only exception is that you want to play strictly for entertainment, and you look at the money lost as something you would have spent on some other form of amusement.

One of the biggest drawbacks that can plague a player is an insufficient bank. A player's bank is defined as the total investment that the player is willing to risk at the tables. As mentioned previously, the biggest advantage from counting is derived from a large bet variation between positive and negative counts. If your bank is not large enough to sustain a $40 or a $50 bet and you are playing at a $10 minimum table, your expected return will not be impressive. A popular method exists to determine your optimum bet size. This method is called the Kelly Criterion.

Kelly Criterion

The Kelly Criterion is one of the most popular money management techniques. The Kelly Criterion states that you bet your percentage advantage over the house multiplied by your bankroll. Therefore, if the current count for the game you are playing gives you a 1% advantage and you are playing with a $5000 bankroll, you should bet $50. If you win a couple of thousand dollars your bank would then be $7000, meaning that you could then bet $70 with a 1% advantage.

The advantage of this method is that you have virtually no chance of going broke because you adjust your bet downward when you are losing. Many player's lean towards caution, betting half Kelly, which is the calculation above multiplied by one half. You must never forget that no matter the extent of your advantage, losing sessions can easily turn into losing streaks of days, weeks or even longer.

Money Management

Money Management

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