There’s always risk in trading, even when it does not seem like it. Indeed, with the S&P 500 in “up only” mode of the past few months, despite headwinds like the Iran War, inflation, and an AI bubble, we might be reminded of that fact.
Knowing when to walk away from a trade or cut losses is one of the key elements that defines successful traders. Legends like Warren Buffett have mastered it over the decades, but, in truth, it is not always easy.
There are parallels in the game of blackjack, particularly a variant of blackjack known as blackjack surrender. The game isn’t typically found at land-based casinos anymore, but can be found at this site and others, where it remains popular with expert players.
Surrender does not always look appealing
“Expert players” is the essential term here, because, on paper, blackjack surrender does not look that alluring. The basic premise of the game is that you can give up your hand after the initial deal has been made; that is the point where you can see your two cards and the dealer’s face-up card.
The reward for giving up on the round is that you receive half your stake back, losing the other half. As stated, it doesn’t feel particularly appealing, but a lot of inexperienced players – and they might be right – would see riding out the hand as the better option.
Yet, the expert trading mindset might beg to differ. Taking the surrender option is a long-term strategy, like selling your stocks or bitcoin at a loss when you believe the assets will drop further. As we said, it’s difficult: nobody wants to sell at a loss, but it can help secure capital to buy back at a lower price later, at least in theory.
Preserving capital can be crucial
For surrender players, it’s not a random choice, obviously. They can work out the probability of winning based on the strength (or weakness) of their hand, such as a hard 16, compared to the one card of the dealer’s they can see, such as a 10 (J, Q, K) or an Ace. Statistically, if you have 16 and the dealer is showing a 10, you have approximately a 78% chance of losing, so it is for that reason that the surrender option would be the superior strategy. It makes sense when you see the raw numbers. If the dealer is showing an Ace, you might consider using insurance, which is effectively the polar opposite of surrender, but you must bear in mind that you are wagering more capital to make the insurance bet.
Regardless, it is a good analogy for traders to weigh up. A lot of crypto traders, in particular, tend to be married to their bags, holding on in the hope that the token bounces back. Perhaps they can be right from time to time, but sometimes the writing is on the wall, and exiting is the best way to preserve capital for the future. It can be galling to sell an asset right before it goes up, but pro traders learn how to take it on the chin.
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