Poker Book and Lessons in Trading

Discussion in 'Trading' started by wdscott, Apr 25, 2004.

  1. wdscott


    "The Tao of Poker" by Larry W. Phillips.

    I just came across this post from another site and wanted to share it with ET members. The comments are not not mine but are from the original post.

    Some Poker Trading rules applicable to Trading. I did not list all rules for sake of brevity.

    Rule #1 - Don't dig yourself into a hole when you first sit down.
    "Start slow, observe for awhile. Give yourself time to watch the texture of the game unfold and see how players are playing in order to get yourself into the feel of it and the rhythm of it."
    For the beginning trader, this sounds to me allot like paper trading, or simulating your moves on the sidelines before strapping on the pads and helmet and getting into the game. But this can only be done for so long. No real gain can be achieved unless real pain is administered. For the experienced trader, I think this means getting to know the character of a particular stock before making the plunge, exercising money handling techniques, seeking good risk/reward propositions, etc.
    "Money you don't lose is just as real as money that you win." - Roy Cooke

    Rule # 5 - If you do make a mistake, correct it as soon as you can.
    "Correct yourself at the next available opportunity in the hand. Don't just keep throwing good money after bad."
    Stop-loss, stop-loss, stop-loss. Also, in order to avoid one of the most common mistakes in trading, how about self-enforcing a policy of averaging up, not down? The experienced trader knows that the "add-to" comes at a higher price than the initial buy. Adding-to comes from a position of strength (profit), not weakness (loss).

    Rule #12 - If you find playing poker is thrilling, adventurous and exciting, there's a good chance you may be playing it wrong.
    "One little-mentioned aspect of poker is that, when played correctly, it can be slightly boring. Not boring in the sense of the word, but in the choice of one's responses. These responses are pretty scripted. You get a certain hand, you do a certain thing. Stray too far outside this predictable script, and the odds will turn against you."
    This is something I certainly found in myself. I think as a trader becomes more experienced and mature his/her emotions become less involved in the stock operation and are replaced by tactics, techniques and mechanics. A system of "if this occurs, then I will do that". The boredom is of course misleading. It should never be confused with lack or absence of passion, because I think if we don't have passion for the game then we wouldn't be doing it in the first place.

    Rule #20 - Concentrate on how you are playing, not on whether you are winning.
    "The idea of winning money is a false goal. You can actually be playing quite poorly and be winning quite handily. Give yourself a pat on the back every time you make a correct play, not every time you rake the pot."
    As the experienced have likely learned, profits can exceed losses even if the number of our losing trades outweigh the number of winning trades. Money or winnings will be the result of correct “decisions” and validation of an idea. At the heart of these “decisions” is the technique of money management, position sizing, risk/reward analysis, stop-loss and profit protection disciplines, etc. This is the goal. Van Tharp wrote about the concept of “expectancy” in “Trade Your Way to Financial Freedom”. If this paragraph makes your smile, you're doing it. If it perplexes you, then this is a door you must find the keys to and open.
    "Winning isn't your job. Making good decisions is your job." - Mike Caro

    Rule #27 - Get a bigger bankroll.
    "Failure to have a big enough bankroll is a common failing in poker. It can lead to all types of adverse effects. The feeling that every hand is a life or death matter, overly-emotional play, temper tantrums, mood swings, and so on. Having an adequate bankroll allows us to suffer the natural swings of fortune that take place, and it lets us do so with composure and equanimity. One ought to try to get one's bankroll to a large enough amount so that the outcome of any one hand has no effect whatsoever on one's play."
    There are no minimums at the trading table which may discriminate against the size of our bankrolls. However, if your bankroll is used too heavily to finance any one trade, then I think some of those failings mentioned above will surely be experienced. In trading, it's not as much the requisite size of the bankroll as it may be the need for proper money handling and position sizing.

    Rule #36 - One of the main ways we improve in the game of poker is by getting certain lessons pounded into our head.
    "Books, seminars, and other kinds of advice are all well and good, but nothing instructs us in certain lessons like experience. Lessons learned through painful experience tend to form a deep groove in the brain."
    "You can close your eyes to reality, but not to memory." - Stanislaw J. Lec
    "When you lose, don't lose the lesson." - Folk saying

    Rule #54 - Retain your ability to control events at all times, in increments.
    "Control is control. Very few people seem to know this important truth. The rule is to keep control of the joystick at all times. The joystick of control means to be able to go forward or back at all times and on a moment's notice. This is what control means. (And it is what the pros do.) There isn't any excuse like I was already committed or I had developed my own momentum by that point and couldn't stop. The true professional in anything has control at each increment. He can turn on a dime. There is more to his control panel then stop and start. There is a whole incremental range in between. Control means the ability to think at each new moment."
    Each new moment, or increment to me is no less frequent than each day the market is open. I re-evaluate my present line of thinking daily, because the market offers me the opportunity and the information to do so. Depending on one's level of participation, each new moment can be much more often (maybe hourly), but it probably shouldn't be much less often than every few days. I wonder sometimes if the pinnacle of this type of control is to not only secure a profit by selling a stock which has been held long, but to actually close the long position and subsequently take it short if the change in character warrants.

    Rule #79 & 80 - In the whole poker process, the least stable part is the player. Master yourself.
    "The true glitch in the system is the human element. The weak link in the chain is us."
    "The nature of the gambling experience drags our emotions and fears to the surface and forces us to deal with them." - Miron Stabinsky, Zen and the Art of Casino Gaming
    "To play at the top of your form, you cannot be emotionally involved in the results." - Anrold Snyder, Card Player Magazine

    Rule #87 - The Novocain Syndrome: losing without feeling any pain.
    "This is a poor use of money that sometimes occurs. What happens is that a cushion of cash permits a player to lose without it hurting."
    Now I can't say that I've built cushions or mattresses of cash, but maybe some pillows here and there. In any case, I do something that can help lessen the frequency of this syndrome. I believe it also leads to some other good methods and practices. At the end of each quarter, I re-set my trading account to its beginning value (assuming I have a profitable quarter, which is always my goal). This means if I have realized a profit, the cash gets swept from the account and transferred into a money market account. From there, I reimburse myself for any expenses incurred (like the cost of TC2000, IBD services, etc.) and I pay the tax man his share. If I don't have the occasion for such a transfer, then I begin to explore why. By re-setting my account to a fixed number, it enables me to focus on things much more soundly. The reason the number moves up and down from its original position is more apparent than the alternative, which may have the appearances of something more random. The other very useful thing it does is it forces me to consider the trades I made during that period. Profits, losses, correct decisions, bad decisions, etc. It also reminds me that this is a business, which is how I try to treat it.

    Rule #215 - Poker is a life-lesson on how to make mistakes.
    "Poker teaches us many lessons. One lesson that it teaches is how to make mistakes. Make them with composure. Make them without putting a lot of emotion into them (both during and after). Make them without denial, blame, self-blame, or second guessing. Don't make them in a way that extends them or exaggerates them, so they lead to even more problems. Confine their area of influence. Correct them, learn from them, move on."

    Best Regards,
    Dave Scott