parallels b/w poker & trading

Discussion in 'Chit Chat' started by killthesunshine, Jan 26, 2009.

  1. i have come to believe there are serious parallels b/w poker and trading.


    you can't win if you are not IN.

    your bet is not wrong till PROVEN otherwise!

    a bet (your hand) is a test of market condition

    so when is the bet wrong and you should fold?
  2. Myself being an aspiring trader since the age of 17, I have actually learned about trading before I ever gave poker a try. On this very forum did I find advice to try playing poker with a few bucks to get an idea of what it could mean to trade.

    Ultimately, I'm still not certain on just how similar or different poker is from trading, but I have come up with a few conclusions that as of right now prevail:

    I, of course, welcome the input of all readers of this post, especially in disproving the perhaps ill-gotten conclusions.

    a) Perhaps the biggest difference between poker is that, plain and simply, some people's personalities are better suited to trading, while others' are best left to poker. A professional poker player won't necessarily be a great trader, nor would a great trader necessarily reign at the tables.

    b) Many say that the main similarity is in the aspect of psychological control over yourself, over your emotions. I personally think that such similarity, though present, is extremely misleading for the reason that psychological control over your emotions is important even in something as trivial as a first-person shooter video game, something like a long game of chess where you're up against an opponent that is no worse than you, etc.

    c) The importance risk control (i.e. money management), however, cannot be refuted! Any financial game involving uncertain, yet biased, outcomes will inherently bow down to the laws of probability. To illustrate how needed it is to find a sweet spot both in poker and in trading, consider this: If you have a 99.99% chance of doubling your money on one bet, and you bet 100% of your risk capital every single time, you'd probably become filthy rich beyond your wildest dreams. But sooner or later that 00.01% WILL catch up with you, guaranteed the same way the laws of physics are guaranteed, and you will go broke. I happen to think that this is the biggest similarity between poker and trading. But they start to end here.

    d) With trading you have a choice with respect to which time frame you want to trade in. You can "play a hand" once every 10 seconds or once every 10 weeks. With poker, you don't really get such flexibility. You MUST sit at the table. A hand can last a few minutes at most, really. You cannot pause the action and research an opponent's history of plays to come up with a hands-down statistically correct action.

    e) What D really means, though, is that because emotional conundrums happen over a certain period of real minutes, they can last longer relative to the short time frame of the hand. With stocks, you have the option of stretching out your trades to outlast your "tilt." For example, you just lost money, and you're angry. Blah, blah, blah. This anger might last 40 minutes, maybe even an hour, who knows. There are a lot more hands during which you can miserably screw up in those 40 minutes than there would be trades if you trade only once or twice a week.

    f) With poker, there are only so many tables you can sit at (online). You have to ante up for every hand, whether or not you wish to fold. In Hold'em it's every round. Basically, you have no opportunity to put money in only when you'll be getting hands with positive expectancy. This probably has more an impact at the brutal fixed limit games rather than in PL or NL games where the blinds are small relative to the potential amount of money you put in. With trading, you can sit and wait for those opportunities. Not only that, but you can also have a computer alert you to when those opportunities are showing up. Imagine being able to watch 5,000 tables and having an alert pop up when you're dealt a great hand if it also means that a very poor player has already entered the pot... Internet access and data fees are just attempts to force a similarity--internet access you pay for whether or not you trade, and data fees are irrelevant considering that even for $30 a month you can have fairly good data. A realistic comparison would be having to make a trade every day, regardless of whether or not it'd be a positive expectancy trade, and having to pay commissions and slippage on that trade as you immediately exit it out.

    g) With the markets, contrary to popular analogy, it's NOT you against better competition. It's you against the SAME COMBINED ONE BIG IRRATIONAL MONSTER cumulatively made up of the participating traders, be they good or bad at what they do. In other words, though the market might "not make sense," it doesn't make sense with predictability. With poker, it's you up against indeed someone who just might be better than you. It's you up against somebody who, indeed, may be unpredictable. What this also means is that when you lose a hand to somebody who either got lucky with the river card, or somebody who just happened to be feeling more aggressive at the time and scared you off your better but still mediocre hand, it most definitely is harder to not take it as an insult. It's harder to not have "a grudge" against that player. The markets, however, are easier to treat more like a big creature unaware of your presence. Players at the table literally ARE trying to take YOUR money. The market, however, doesn't know the sins it commits against you when you lose money.

    I'll add more to this as I brainstorm some.
  3. i look forward to more of your insight/stuff :eek:
  4. A lot of similarities, and I'll actually be lecturing at MIT tomorrow about some of them.

    Probability, Gaming, and Trading Week
    MIT]Community IAP Activity, led by xxxx, research affiliate with the MIT Laboratory for Financial Engineering

    Don Bright, Bright Trading, LLC co-founder & card counter turned stock market millionaire
    Trading and Poker Parallels: Risk? Yes. Reward? Of Course, But the Similarities Go Deeper
    Bright Trading is one of the largest Professional, Proprietary Stock Trading Firms in the U.S., with trading rooms Nationwide (and Canada) with hundreds of traders. Formed in 1992 by two long time traders and friends, with the intention of providing the tools and capital necessary for serious traders to succeed.

    You might find this interesting:

    Some basics:


    Some poker player/traders:

    All the best,

  5. As Thunderdog reminded, another difference between poker and trading is that in poker it is actually a technique to get somebody to fold with a hand that is better than yours. Oftentimes you'll hear of people giving praise to somebody who played a hand well enough to recognize that by betting a certain amount he will induce the opponent to fold, though he himself has a hand that is worse if things were to go to showdown.

    This is the concept of representation, and is actually underestimated, I think, when discussing the differences between poker and trading. In the market, you don't face opportunities to convince your "opponent" to give up money by simply throwing more of it at the market.

    Perhaps even the biggest DIFFERENCE between trading and poker is that in poker, your opposition is aware of you and you are aware of it. In trading, your opposition is just a self-centered creature that will do as it will regardless of what you do or how you feel. The poker player "knows" you exist, the market doesn't know you exist. The poker player takes you into account when deciding what to do, whereas the market will go up or down as it pleases, when it pleases, without being aware of you or giving two hoots about you.

    What that means is in poker, being in a situation where you have an 80% chance of winning 2 dollars for every 1 dollar you risk is absolutely meaningless if all you can get out of the other guy is a few bucks. With the market (except of course unless you're trading 100k shares a minute), when you're in a situation in which putting in $1 will reap you $1.30 over the long run, you usually can bet anywhere from $1 to $100k dollars, and generally not change your chances of getting $1.3. But in poker, how much you bet very well affects the return-on-investment as of that moment. Simply moving up to higher limits does not mitigate this, considering that different limits pose different styles of play, and are generally more challenging than the limits below them.
  6. With all due respect, to me it sounds that many puzzle pieces are being forced into place. Though they vaguely fit, they do not truly belong in those places. Too many would-be similarities between poker and trading sound a lot like pale analogies of one another, rather than solid, actual similarities.

    Yes, BOTH poker and trading involve the assessment of odds. BOTH involve the risk-controlled allocation of capital in situations that by design call for such action. And BOTH rely on the discipline (emotional control) to allocate capital only in situations where reward outweighs the risk on a dollar-for-dollar basis. But the similarities end there, I think.

    Ok, controlling emotions is critical in both trading and poker, but the main problem with using this as a comparison is that trading can be compared to so many other things, like sports. So can poker. In truth, emotions are inhibitions in all fields--not just trading or poker or sports. When debating the similarities or differences in poker, it makes sense to discuss things that would generally apply only to trading and only to poker, or both, but not things that would apply to many, many other things. For example, I could say that trading AND playing poker can be done on a computer, and call that a similarity. Yes, it's a similarity, but come on... editing graphics or writing music can be done on a computer. See my point?

    Outs and hedging? I think that's comparing apples to oranges. Once a deck is shuffled, what cards will come, will come. But unless you have X-ray vision, you can only assume the well-published, well-known, mathematically correct odds of certain cards coming. Hedging isn't the only way of increasing the odds in your favor in trading. Though both, playing hands with many potential outs, and hedging increase the odds in your favor, to say that outs are poker's equivalent to hedging in trading is, again, forcing an analogy in an attempt to create the illusion of similarity.

    "Table talk" does not change the cards which will fall in the deck or those which have already been dealt, true. But what table talk in poker does is attempt to manipulate the decisions of those still involved in the hand. In the markets, down- or upgrading a stock is merely the same thing. Sometimes it works, sometimes it doesn't. How many times have you heard bad news about a stock on TV, and yet the prices are still going up? But again, these aren't the respective counterparts of poker in trading, or trading in poker. These are just factoids that might be casually, vaguely, possibly similar in appearance to the untrained eye. Table talk in poker is done to change the actions of individual players. Table talk in the markets is done to "alter the order or the cards in the deck."

    Varying your bets? Huh? C'mon! This comparison makes littlest sense as of yet, and if I dare say it, is outright incorrect and misleading! In poker you vary your bet sizes (not possible in fixed limit games, by the way) in an effort to produce a different reaction from those who are still yet to act. The size of your bet is a factor taken into account by others when they attempt to decide on their course of action. In Blackjack, you vary your bet size only because to do so is in accordance with a positive expectancy card-counting system. Simply, you keep the bets as small as you can while the cards most likely to come are unfavorable, while you then bet more as the deck runs out of those and instead "is rich in" cards that are favorable. In trading, the ONLY reason to vary your "bet size" is to increase your dollar-amount exposure to either favorable or unfavorable moves. In other words, when you trade in small dollar amounts, you are doing so only because to go any higher would be too big a chunk of your overall trading capital. Poker has this equivalent, and it's called playing at lower or higher limits. So does Blackjack! But varying bet sizes in either poker or blackjack has nothing to do with the size of your bankroll.

    Betting for information? Now you're just looking for filler text with which to plump up your articles. In poker, a bet is used for information. Big OR small. The same reaction to a smaller bet says a different thing than the same reaction to a bigger bet. The size of your bet, in effect, influences action of other players still in the hand. Sometimes you gain information by checking, which is actually making a bet of exactly zero dollars. No, making a small trade in a stock does not reveal to you information that you don't already have through the Level II or OpenBook (extremely illiquid stocks are a whole different animal).

    Pot odds? Again, yes it's true, but what you say can be simplified through what was already covered: the fact that to be successful in any risk-reward endeavor, the risk taken needs to be outweighed by the reward provided. There's no difference between having a 50% chance at a $100 dollar pot having to call only $25, and having a 10% chance at a $1000 pot having to call only $50. Each scenario doubles your money. This is not a unique similarity. It's covered by the concept of making sure your dollars risked are less than your dollars gained.

    Play online, trade online? Hmmm... sounds familiar.

    Discipline and patience? Again, covered in my second paragraph of this post.

    To have fun while doing it? Eh... I don't know. If you're playing poker to "have fun," or you're trading to "have fun," you're doing something wrong. If I had to stake someone who told me he will "have fun" playing poker or trading, my eyes would pop out. It's all about the money. Trading isn't supposed to be fun. Poker isn't supposed to be fun. When played correctly, poker tends to be a bit boring for most personalities. When trading in a way that is profitable, most are bored.

    So, Don, were you honestly trying to answer killthesunshine's question, or were you just trying to advertise your website on which you sell stuff? :)

    All the best,
  7. Well, LOL...since you agree as much as you question to you is....are you really dissecting the facts as presented or simply trying to toss some sort of dart at my (and many others) opinions. Ours are based on decades of engaging in both poker and trading at the highest levels...but still just opinions. Not a big deal, "they are what they are"..... as they say, this is not rocket science...simply a comparison. If you would like to come by the office and play a few hands on our table, or discuss trading tactics, we'll be here.

    My brother and one of our traders added much of the insight, FWIW. Both have made tons of money in poker and trading. And, again, FWIW, the banner ads are enough to bring "traffic to our website"..... And, as a I said, feel free to come by to discuss with me or them.

    Again, not a big deal...if you disagree then great... this topic has been discussed for decades...even in depth here on ET. And, heck, it's just "chit chat" anyway, LOL.

    Hope you have a great day.

  8. Mr.Vick


    I've pretty much come to conclusion that playing poker is profitable only if you have a rakeback deal.. I make about 3-4k per month from rakeback, from actual games i...well usually break even. so my onlu income from poker comes from rakeback, maybe i suck at poker :D

    in case you don't know what rakeback is..
  9. what's 'rakeback"?
    #10     Feb 8, 2009