Wednesday, 30 May 2012

The Alpha Edge

Post hoc ergo propter hoc
Translated from Latin “after this, therefore because of this"
The Gambler’s Fallacy

Have you heard about the “gambler’s fallacy” before reading this? If yes then maybe you will still find this an interesting angle, the ‘gambler’s fallacy’ is interesting because when you follow trends then you will understand the relationship and the point I’m trying to make. Because if you haven’t then maybe this information, may save you a few shekels in your pocket? It’s simple really. I love mathematics and science, and I suppose that’s why I chose to study artificial intelligence at university.

Anyhow, the gambler’s fallacy is similar to “Post hoc ergo propter hoc” or “Post hoc” the short version often heard throughout the courts of the land. I say similar in that the gambler’s fallacy is based on the belief that the odds don’t change after an event that preceded it.

Let me explain. You have heard about card counting associated with blackjack, well, if you are good then you have an edge and without an edge you are relying just on luck, chance or call it what you like. But, if you understand how odds change dramatically as you proceed through a game of chance, then you can take advantage of it, and pocket some extra cash legally. All you have to do is to understand mathematics and that’s why I am here to show you. Please understand this is not advice, just simply how you should look at things that come your way.

I don’t count cards, I can’t be bothered, but there’s not much point in playing the game of blackjack and its other varieties because if you don’t bet big {only with what you can afford to lose, because you shouldn’t bet your house on a flip of a card, and it’s as simple as that, don’t do it.} when the odds are in your favour then you are just gambling. You see there is fine line with playing a game of chance and having an edge and just gambling. I don’t advocate gambling, no way. It’s just fun to be right sometimes. If you do want to gamble, then that’s your choice, you and everyone and their granny’s built Las Vegas.

If you analyse at how hedge funds work, they follow a similar principle, normally trends. Don’t forget they say, they are, the smartest guys and girls in town. Well move over, because I don’t know what table they have been feasting at, but I want some gravy as well. It’s easy to make money on a market that’s in a bubble. You follow the trend. And hopefully you get out before someone bursts the bubble and you are left with egg on your chops and an empty pocket.

Trends can be very profitable it’s just like a stock market bubble, it’s hard to go against a trend, but equally it’s important not to stick all your bankroll on one selection. And as long as you don’t stick all your money down and only a small percentage then following trends is the way to go.

Here’s an example: say you toss a penny 10 times and the odds are exactly ½ of getting a heads or a tails each time you toss the coin.  So the true odds don’t change. Why? Because as I have mentioned in this article just because something happened before, bears no relation on what happens next{Post hoc}. This is similar to the game of roulette where you have a run of black or red numbers come up, but why do some people think  – the number, the wheel, the universe and whoever has the memory of what happened before. God said, "I can't remember."

Do you remember the article on here about the many who broke the bank of Monte Carlo? Well, what some of them did was completely opposite to what most gamblers do. Most punters would at some point have been backing red in the hope the run of blacks would end. But history and a lot of things in this universe don’t work like that.

Anyhow, what happened on that famous occasion when the casinos literally cleaned up was everyone and their granny kept on backing red in the hope that the run of blacks would stop but, it didn’t, it went on for an incredible 30 odd times before a red turned up.

Just think 1 to the power of 30 - 1 that’s = 2000000000000000000000000000000 that’s big. I hope I got this right because my scientific calculator is on the brink of a mental collapse its battery life is dodgy. I have to give it a big knock just so the Led lights up. So what, yes it’s a big number and I have made my point. It’s a really big number and I have had lots of hot dinners.

Take a look a sequence of numbers or in this example, Say you toss a coin 100 times in theory and the odds are the same for each toss of the coin. Right, yes, but take a look at any sequence of numbers or tosses of a coin and what do you find? Well, what do you see? Over a reasonable sequence it should even out roughly 50/50, but in that sequence the odds can sometimes appear to be in your favour then it is time to take advantage of this anomaly. You have it, a pattern. Take a look at this sequence of 10 tosses of a coin done at random.  I tossed a coin for 10 times to see what would happen.

Example: I just tossed a 2 penny coin 10 times and recorded the results, purely random if there is such a thing. Heads = H and Tails = T

H,T,H,T,H,H,H,H,H,T  Can you see the pattern? 5 heads in a row.

The odds haven’t changed, but your edge has. You figure it out.

Also, if you had been backing purely heads then you were right 7/10 times and the true odds are not now 1/2 per toss. They are 1.25 and they have increased purely by the sequence. The real edge {s} sometimes difficult to find, that's why spotting a pattern is a daily pattern for logarithmic computers in the city. Whoever spots the pattern emerging gains the edge, it’s called finding the alpha edge in financial circles and happens in milliseconds every second of the trading day.  "I made a million, Today. What did you do?"

Ask a city trader what the alpha edge is? And [they}] will probably say is the biggest bonus builder in history.

P.S. Sponsored by Madbrokes a comedian on antidepressants.


In my latest book “It’s Never Too Late” read how dreams do come true, but be careful what you wish for. Understand the secret of greed and you will attain one of the secrets of prosperity. The book will also take you on a journey and explores love, money, luck, and much more.


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