Risk of Ruin

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What You Need in Addition to an Edge

Suppose you've gotten the edge over the casino by learning to count cards at blackjack, or play perfect video poker. Or maybe you're a brilliant sports bettor or poker player. You still have to take into account your risk of ruin.

The risk of ruin is the chance that standard deviation will destroy your bankroll before you have a chance to win at the levels you expect. Remember, the edge that you have is just like the edge the casino has - anything could happen in the short term.

So what you need in order to weather the storm that is risk of ruin is a big bankroll. The closer you can come to playing in the long run, the better you'll do if you're making positive expectation bets. But if you have a bankroll that's too small to handle the swings caused by standard deviation, then you better watch out for going broke.

Winning and Losing Streaks

Standard deviation causes winning and losing streaks. And yes, if your bankroll is too small for your action, it's possible you could go on a winning streak and get yourself a bigger bankroll.

But it's just as likely, possibly even more likely, that you'll go on a losing streak at some point and run out of bankroll completely. And that's no fun.

What You Should Do

To avoid risk of ruin, make sure that your bet size is a small (very small) percentage of your overall bankroll. If you have a $10,000 bankroll, and you're betting $1000 per hand at blackjack, then you probably won't be playing long, no matter how well you count cards or how well you've mastered basic strategy.

On the other hand, if you have a $10,000 bankroll, and you're making $10 bets on hands of blackjack, you're going to have a lot better chance of finishing your trip to the casino a winner instead of a loser. The bigger your bankroll in comparison to your average bet, the lower your risk of ruin.

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