Poker and the Beginning Trader

Discussion in 'Psychology' started by FanOfFridays, Jan 3, 2003.

  1. Here's an idea for beginning traders - I am hoping that even one or two people get something out of this.

    I am NOT trying to equate gambling with trading here. Good short-term traders are probably more like the house in the sense that they have an expectation of wins and losses, but can play with a slight statistical edge so that over time they will make money. Nor am I saying anything at all about the safety or advisability of playing poker online. For all I know, these rooms are filled with players secretly acting in collusion - there are probably other ways of gaining an edge that I don't know about. I am NOT in ANY WAY affiliated with any gaming site or company.

    Several successful traders have pointed out that winning poker play requires some of the same skills as successful trading. I decided to test this theory by registering at an online casino and playing a little $0.50/$1.00 Hold-Em poker. For those of you who are unfamiliar with the game, it will be easy to find an explanation online, at Google search. It's necessary for an understanding of what follows.

    I believe that this particular poker game provides an excellent simulation of a trading-type environment, and tests an individual's ability to make the right decisions under pressure. More for very short-term traders? Maybe not. In poker -

    1. Entry is based upon a plan which puts you in only those situations which provide a reasonable risk-reward ratio. Certain set-ups will present themselves which must not be taken . You must become accustomed to sitting around watching others making money while you get nothing on your screen. You will be out a lot.

    2. Once your rules have triggered an entry - you MUST get out immediately if your system tells you to (in Hold-Em this is a bit easier to figure out than in trading, although experience and judgement are crucial, even when playing on the net as opposed to at a table with real live faces to read). In Hold-Em, bad players have an opportunity to hold on too long, because there is always a very small chance that the losing hand they are in, which looked so good a moment ago, could still win.

    3. If you enter the game without sufficient capital, you may find yourself thinking about how much money you have lost, and it will start to affect your decisions. Or you will simply encounter a run of bad cards right at the beginning and you'll be out before probability has a chance to work. (Of course it doesn't always come around right away, but the pro poker players know that it does, eventually).

    4. Your worst decisions seem to come immediately after either very bad or very good events, and just after a bad beating is the most dangerous time. You get beaten badly having played a hand perfectly, by a guy who had no right being in the hand, just a clearly marginal losing player who stayed in too long and got lucky. Mostly they will crash and burn, except when playing you. You are mad and so you go in the next hand with marginal cards. You lose quickly. Or you have just won big and give yourself a little psychological bonus - 'play that hand that I usually fold'. The resulting 'small loss' is actually 1/3 the real amount of your last big win.

    5. You will find that 2 hours of correct play which results in i.e. a 20 % gain in equity can be ruined in about two minutes once you make a mistake. It is incredible how fast it can happen.

    6. You will find that success in the game is ALL ABOUT GOOD DEFENSE. Your entries are triggered by your system. Your winners are going to be winners early on and they will essentially take care of themselves. It's all about how you handle the losing and equivocal situations. It is very difficult to watch a hand that is winning turn into a hand that is clearly losing. You MUST be able to fold and fold and fold if that is what is required.

    7. I am not sure about how this relates to trading, but the Phantom would like it - the best poker players start betting aggressively when they are in a winning position. Larry Livingstone might go for it too. ("It felt good so I sold another 1000")

    8. It's hard to stop playing when you recognize that you aren't playing well, and also when you are winning and see your performance start to deteriorate - you start to come up with all sorts of numbers in your head - "i'll quit when I've given back $xxx". That number goes by and you are still up, after all, and the next hand could be the big one, so you'll just see one more flop...

    9. In poker they say that if you don't know who the sucker at the table is, you're it. With even the most superficial research, you will be able to discern incredibly bad play at the tables - you will see a style of play that has almost no statistical chance of winning in the long run. The point? It's amazing how many people try this without understanding what they are doing. You should ask yourself - will I be one of those at the big table? (NB - I assume that this bad play all but disappears at the high-limit tables).

    10. Believe it or not, keypunch errors can REALLY BURN YOU!! I won big at the last one, and I have heard of others who won big clicking buy instead of sell; anyway, it's definitely instructive to hit the wrong button and I had to devise a system which would eliminate or severely limit these errors.

    11. There are many ways to win. I tracked the moves of several players, both winners and losers. The losers all exhibited the same bad mistakes. The winners had different styles - one was super aggressive, in a lot and betting big and taking the occasional big loss, whereas another guy was out a lot - I didn't have any notes on him because he didn't seem to be doing anything - but his equity just drifted up.

    12. You will experience situations in which you do everything perfectly and you still lose. And this brings me to the most important point

    Perhaps the most instructive thing has been watching myself break my own rules. (I have played about 10 sessions of poker. I lost $50 after the first three. I did some reading and came back with another fifty and I just came from a down session :), so my stake is now about $35 - so I am still losing but slowing the rate of losing). The vast majority of my losses were completely avoidable - they were the result of bad mistakes in play as opposed to bad beats. The 'good' losses I took would not have been enough to prevent my equity from increasing - I had a lot of good, winning hands. It was the emotional mistakes... just the small mistakes, staying in only one bet too long 7 times - that was seven dollars right there!! I have seen maybe 1000 hands dealt. And another thing - I KNOW when I have made a mistake IMMEDIATELY - I would click 'call' and then cringe, thinking 'huh?? Why are you even in this hand'?

    It is obvious to me that success in this small time game is attainable if one can play mistake free. Is that so hard? (Well, it's a little bit tough for me!) Is mistake free trading so hard? (for some, clearly, yes). Will it work out the same way in trading if you play mistake free?

    I am going to make a modest proposal - I feel that any beginner who is going to try any type of trading should see whether they can take a $50 stake at the small time tables and turn it into $100. This is only for those who are willing to do the reading which is necessary in order to understand the game and the basic strategy. I feel that prospective traders would get a cheap lesson in risk management and emotional control under fire, with real money on the line. It's all about discipline and executing your plan.

    I advised someone on another thread that $2000 wasn't enough to start trading, and some felt that this was 'negativism'. The warnings here aren't meant to discourage; rather the opposite - I have seen that success at Hold-Em can be achieved, by me or anyone else, as long as we can control our emotions. A winning plan isn't the major obstacle. I am BY NO MEANS saying that these two pursuits are the same, or that success in one positively guarantees success in the other. I am interested to see if anyone feels that this is bad advice for a beginning trader - whether this can ingrain any bad habits which I am not considering.
  2. qdz


    Wow, a nice post. Thanks a lot.

  3. Is your last name Lesson by chance, young lad?
  4. hi hardrock, qdz

    hardrock, you didn't mean Leeson, did you :) He's evidently something of a gambler

    Hmmm.. I guess I should have done this search _before_ I started this thread.

    You can find a previous discussion of this topic by dottom and other real poker players here

    You'll also find some contrary opinions about entries and exits and which are the most important. I should say that my suggestion was for those new to poker who want to adopt a fairly simple basic Hold-Em strategy that involves folding certain hands pre-flop, depending upon your position. I can see that any real poker players will be amused at my descriptions of what to do in certain situations, especially the bit about what to do when winners turn to losers. Obviously, high-limit poker is a completely different story, one with which I'm not familiar.

    Re: playing online, please do your own research. It's probably better to find a real low-limit game and commit a couple hundred bucks to the project. You can also play for play money chips at some sites - it costs nothing, but the play won't be as realistic.
  6. Excellent post!!
  7. Zen and the Art of Poker: Timeless Secrets to Transform Your Game
    by Larry W. Phillips

    Great book about poker and trading.
  8. Flow


  9. dottom


    I highly recommend all traders to learn serious poker. Not your Thursday night poker game with friends but go to a real card club (there are legal and prevalent in almost every state now). Once you learn the game, establish a bankroll and treat it like a full-time job! Even if you only play once a week, keep track of each session, your expenses (mostly food), and keep your bankroll separate from all other money.

    Start here and read some of the advanced books to learn the intricacies of poker theory. The game is all about psychology and probability. Perhaps because I used to play poker professionally I find trading discipline much easier to follow than what the average trader may experience as described in the various psychology/discipline/95% inner self type posts.

    I honestly believe that you will learn more about yourself playing poker professionally than any other profession, with trading a close second.

    P.S. If you are an above average looking woman then be prepared to meet rude, crude, and lonely men at the poker clubs. And make sure you use it to your advantage!
    #10     Jan 4, 2003