What can you learn from poker?

Poker and trading do have certain things in common and thus each of them can be studied or practiced in order to be better in the other one. You might not agree with it yet, but keep reading.

Diversifiaction
In poker, your your capital you're using to play is called bankroll. Successful players never bring to the table more than 10th of their bankroll, sometimes even less than 1/100th. During one session, when you can play on more than one table at the time, you should still not risk more than 10% of your capital at the time. Thus you should have a nice available bankroll. For example if you are able to play on 10 tables at the time, then assuming you are playing in 10NL table (meaning you bring in 10 bucks to one table at a time) you'd need to have $1000 bankroll. Yes, this is rather conservative, but if you play well, this means that during any one session you have $100 that you're risking with and this $100 is divided between 10 tables, thus making your risks even smaller. With 10 full tables you play anywhere between 500-1000 hands per hour. For a winning player, winning 10-30 big blinds per 100 hands is normal. In this case one blind is 10 cents. This means that with this bankroll strategy you are ideally able to produce $10-$30 of profit per hour. And this is 1-3% of your total bankroll. So - why should you risk more than that? Of course, not too many people can successfully play on 10 tables at the time. But this was just an example. Increase your bankroll to $2000, play just 5 tables at the time but now 25NL and your potential profits are now pretty much the same.

Note that even though you might see it as a worthwhile investing possibility, BUT poker is a game of skill like playing on financial markets, only with the difference that at times it can get a lot more emotional (even though it shouldn't) while it still should be learned thoroughly before even thinking of starting.

Stop Loss
Like with trading, you always should have your stop loss in place. In poker, the stop loss pretty much means that you only bring a certain amount of your bankroll into play at any one table - as this is pretty much all you can lose. If you have managed to empty yourself in half of the tables you should consider taking a break. After that, if you continue losing, you still shouldn't bring in more money into the table, your maximum loss allowed per day shouldn't be more than 10% of your bankroll. It's very similar with trading - if you lose multiple trades in a row, but you haven't reached your daily allowed maximum allowed loss yet, you should still take a break, calm down, and think if you actually are ready to continue today or not.

Also, lets say your stop loss is in place, but now you something like doubble-up in all your tables. My personal suggestion now is to get out of all the tables, and IF to keep playing in new tables then you need to adjust your stop losses, you need to bring them up, so that even if your new tables all go to hell, you'd still be having profit for the day. An example - I started with a total of $50 divided between 4 tables. Within couple of hours I reached $150. Now, what is the right thing to do here? Well, before going on, stop thinking that you definitely need to keep the $50 now. It's plain wrong. Now you have $150, it's all YOUR money. All this money needs managing. So the right thing to do here is to again, leave the tables and stop playing for today at all. Or set your new stop loss to a new level, eg. $120. What did I do? After 1 more hour I was down to $38 and I stopped. It's so similar to trading decisions - only with a difference that making these decisions in poker is often more difficult - and if you are able to make the right decisions in poker, you can also make the right decisions in trading, at least when talking about stop loss. I personally need to work on that some more.

Small bankroll / small capital
Now I can bring in Max Gunther and his theory that I have previously talked about. One of his points was - if you're playing with not meaningful capital then it's even less meaningful to divide into too many different parts. Lets say that $50 is all you deposit. In order to make your time spent playing worthwhile, you can't really just put $1 into all tables as this wouldn't be worth your time. You'd spend hours but the outcome is pretty meaningless. Instead, in poker, you should rather split it up between 5-10 tables ( so 5-10 buck per table ). And if this is the money you are depositing to the poker site, then I believe that this is the money you can afford to lose. But at the same time, if you do lose it, it would make you worry slightly, for one reason or another. So diversification is a two-sided game and depends much on your capital.

Winnings
If you're having a really good day and you're winning a lot then beware - the streak usually ends. Easy to understand, hard to remember. If you have won a lot, then it's good time to call it a day. You're doing trades every day and every week. This is one day. And one day is one day, and at some point you should stop, preferrably when you're ahead.

Emotions
Poker is a game of skill, but for the main crowd who are at the poker table, poker is also a game of emotions. I have mentioned before that trading nor poker should be a game of emotions to YOU. So you need to be aware that emotions often do want to come into play - and if you remember that, you should try to keep them out. Decisions should be made based on analysis.

Often, things get more emotional OR irrational after you have played for hours and hours in a row. At that point, you might not even notice it anymore until you have lost a lot. And also this is one reason why you should call it a day at some point before it's too late - whether you have already made a nice profit (now go have a beer) or if you have lost to the point where you had set your limits (now analyse what happened and then go have a beer).

After you have lost 50% of your bankroll/capital
What's your next step now? Okay, firstly lets say that you didn't lose it all at once but rather you had your stop loss limits in place etc, but maybe you just had really bad days in a row or maybe you just need to learn a lot more. Whatever the exact case is, what are you going to do now? Are you going to the higher limits? (in hopes to win everything back fast). Or are you going to play lower limits now? (in hopes that if your losing streak continues, you won't lose too much at the time). So what are you going to do now? In most cases you should never increase the limits. The other cases I'll leave up to you.

Does losing affect you badly?
Without going to philosophy, YES, it does. The more you lose in a row, the more emotional you get, the more you start to make emotional AND stupid decisions, the less you are able to analyse your moves. And where does it lead you? To even more losses of course. In poker this extreme emotion (that happens quite often) is called tilt. When someone has lost a lot then he starts to play stupid, it's usually very visible when someone's on tilt. Sometimess he just starts to go "all in" every second hand, read between the lines - "take my money, I don't give a shit!" - is that what you want to be like after a number of losing trades? Think about it. Of course you don't but you need to think about it as something like tilt in poker can also happen in trading. But it shouldn't.

Conclusion
There are sides that are the same in poker and trading. How to lose without hurting yourself could be one skill that is needed in both of them. If you can do it in poker, you can also do it when trading and this is the main thing.

Here are couple of good poker rooms for you - I don't invite you to play poker if you don't know how to play it (it's a though skill to learn, just like trading), but I believe that in order to get your stop losses right, not to depend too much on your emotions or to even recognize the fact that you're influenced mainly by your emotions at the time of doing the trade (or playing the hand), then I feel it *might* be useful. Note that if you're from US then just play for play money in those pokerrooms. If you're not from US, I would suggest you try it out with real money (just minimum amounts though), as there is a big difference whether you play for your own money or some virtual currency. These are the two poker rooms that I prefer (due to their good interface, many others are plain ugly) -

Poker Room, Poker Stars.

What can you learn from poker?

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