Way back in the day I used to count cards playing blackjack. Not professionally, but enough to be told I could no longer vary my bets at I think the El Cortez in downtown Vegas.
For those of you who don't know blackjack, the dealer gives two cards to everyone including him (or her)self. Each person decides to hit (take another card) or stay not take another card. If you go over 21, you bust. The goal is to be closest to 21 without going over.
I liked Blackjack because there was always a correct way to play a hand, known as basic strategy. For example, you never ask for another card if the dealer holds anything between a 12 and 16 because chances are, they will bust. This doesn't mean that you will win every hand; it just means doing this is better than anything else. And in the long run if follow this strategy, the house advantage is only around -0.5% (depending on lots of things). The house always wins.
But not always. If you use a card counting strategy, you keep track of what cards are still left in the deck. I expected to win +0.5% while using the Red 7 system. This edge isn't that much. But in the long run, I would win.
The problem is that the long run can be very long indeed. The risk of ruin means what are the chances that you will go broke before that long run happens. If you're playing $10 minimum tables, you need a bankroll of $5,000 to have a 10% risk of ruin (meaning a 9 in 10 chance you will double your money before losing it all). That's a lot of $10 hands.
The skill in blackjack is knowing when to bet big. When the count is high (meaning there are lots of 10s and aces in the deck), the dealer is more likely to bust and you are more likely to get 21; which means you should bet high. Recommendations to increase your bet can be up to 20x (so on a single hand betting $200 on the $10 tables).
What does this have to do with investing?
With both counting cards and investing, you need to be able to withstand small losses (and sometimes big ones), knowing that you will eventually make it back. With blackjack, I expect to lose tons of hands (especially when the count is low and the dealer draws a 21 from a 16), but in those moments I will be betting less. When the count is high I bet high, win more, and hopefully make up my losses.
Investing doesn't work this way. Rather than each hand being a unique event, the asset price continually goes up or down. This means I always have an option to sell my position.
The skill then for investing is knowing not when to bet big, but rather knowing when to take your losses. Dow Theory says that "trends exist until definitive signals prove that they have ended"; in other words, a market is likely to continue to move in the direction it's already moving. So if the asset you just bought goes down 5% just after you buy it, it might be wise to cut your losses at 5% before it goes down to 20%, even if it means losing $500.
In the same way, a token going up is likely to go up some more. And so that 5% loss can easily be made up for by a 20% gain in a day. I would sometimes buy and sell an asset many times before finally holding onto it for a big gain. Each of those losses hurt, but seeing it finally go up after all that was quite a rush.
And now?
I got out of blackjack because I would get crazy anxious when the count was high and totally lose track of the count. When you have $200 on the table because the count is high, and you're dealt two 8s to the dealer's 14, basic strategy says to split the 8s, which means put another $200 on the table, and you're likely to lose it. Stress.
I am also out of day trading for a different reason. When I stopped I was positive and had figured out how to cut my losses and keep my gains. But I didn't like having to be by my computer all the time, always ready to sell to cut my losses.
So I did what others are doing now: Farming CUBbies!
This is not financial advice. Do your own research.