This article starts with a tinge of colloquialism – “same same but different”. Today, we understand how trading and poker have a few things in common. In both fields, you will find consistently profitable individuals that have made a fortune across decades. Now, if you’ve never studied poker like a math subject, you’d probably think its plain gambling like every other card game. However, top poker players (and traders alike) believe they have a statistical edge that keeps them on top of their game. So let’s explore what attributes these top players have in both the poker and trading arena.
This is a quintessential part of successful “poker-ing” and trading. Top players stick to their plan under all circumstances. They react to situations systematically, minimizing human error resulting from misjudgments. Creating a game/trading plan is often the easy part, executing it to perfection with little deviation is often the hardest.
Both poker and trading requires the law of large numbers for a given strategy to produce a distribution of outcomes with a positive expectancy. You often see poker players go “bust” in tournaments but that is not their entire career stack. They have enough bankroll side aside for subsequent “buy-ins”. Top poker players are even so particular to the point that they subdivide their bankroll into small batches and wager only a certain amount on each hand. Similarly, top traders manage their bankroll by wagering a pre-determined amount of their capital in each trade. Read Ed Seykota’s rules to trading here.
Although this determines the rules of engagement for any given move, it is probably the last on the list. Having a good strategy that is proven to be profitable could position well in the business of poker or trading, but that alone is not going to make you money. Both trading and poker requires the law of large numbers (a huge sample size) for the strategy to make money. It is not uncommon to see players/traders take 10 straight losses in a row. If one wagers too big in any given outcome, which is random, a loss could mark the end of business. Be in trading or poker, participants should figure out how they can stay in the business for more than 5 years, and not expect to be a millionaire in 6 months.
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Till next week, have a good weekend!