–][– Forex Thoughts –][–
Poker & Trading – What It Takes To Succeed
In this new addition of my blog ‘Forex Thoughts’, I will be exploring and discussing ideas / concepts that I have come across and share my thoughts on the subject.
My first post isn’t specifically around Forex, but trading in general in terms of how it can be relatable to poker in certain ways. There have been many comparisons of poker and trading before, I know I’ve seen one or two posts, but I wanted to discuss it again on here when I came across an interesting article.
Back in the my Uni days I was really into poker, I played with friends a lot, a bit in the casino and online but never anything high stakes (although £50 seemed a hell of a lot when you’re a student!). What I did do was follow it like people follow football; I knew the players, the tournaments, the rankings etc. and even used to watch it on TV. And there was always one person who I found interesting to watch / listen to, this was Daniel Negreanu. I used to follow his blog posts as he always had something interesting to say, poker or otherwise, plus he’s just an entertaining guy.
So it had been a while since I had read anything he had written and I came across this article that got me thinking about how in many ways poker and how to be successful at it is relatable to becoming successful at trading.
He titled the post “A Fool Proof Plan To Becoming A Professional Poker Player”, which could also read as “A Fool Proof Plan To Becoming A Professional Trader” (read between the lines a bit), the concepts and aspects I have drawn out of this post could easily, in fact they do, apply to trading and specifically making a living out of it. (Note: I do not trade for a living, and have yet to master these concepts, but this is just me writing down my thoughts on the subject, and it has certainly given me something to think about).
There is a reason why Daniel is one of the best poker players in the world, and continues to be after his many years in the game and he clearly draws on his experiences in explaining the best way to go about achieving success in poker.
Negreanu talks about how if you want to succeed you have to take the game of poker seriously and treat it as a job, he says a poker player is really like a small business owner. Reading that I thought exactly the same is true for trading; you have to take it seriously as if it were a job or better yet, your own business, managing your capital, managing your risk etc. with losing trades being seen as business costs, so long as these ‘costs’ don’t out run your profits (consistently), then your trading/business will be successful.
This got me thinking about something else Daniel used to do in his early days. Playing poker in his late teens in Toronto, Daniel would go to games and bring a note pad with him and make notes on every hand he played, didn’t play, the players he was sat across from, odds on winning a hand, thoughts on how certain hands played out, everything and anything he could then learn from. This is exactly what journaling is in trading, keeping a record of the trades you’ve placed, the type of set up, probability, risk assigned and notes like whether you thought it was a good set up or not, all things you can learn from in the future. This is probably why he is still a great poker player, he continues to keep track of and learn the game.
Like many traders, a lot of poker players lose their bankroll, hopefully learn from the experience and improve. Managing your poker bankroll is similar to managing your capital in trading. In poker, bankroll management is a key aspect of the game, something that most new poker players don’t do (and that’s because they tend not to treat it like a job/business), the same can be said with new traders not managing their capital properly in the beginning. Say if you have a £100 bankroll and start playing £2/£4 blinds, then this leaves you with a greater risk of going bust if you lose hand after hand. A better way to start with £100 would be to play £0.10/£0.20, this lowers the probability of losing the entire £100 all in one session. You get pulled into a pot on £2/£4 and end up losing £30 (that’s 7.5 time the big blind) in one hand that’s 30% of your capital gone, whereas if you start in £0.10/£0.20, losing 7.5 times the big blind equates to £1.50, so losing 30% will take a lot longer and can be controlled a lot easier. In trading this is like only risking 0.5-1% per trade rather than 10%. You need to have the capital behind you and risk a small % so that if you do lose it doesn’t wipe you out.
An interesting point Daniel brings up is that if you want to become a full time poker player you need to have a plan, work things out and realise that it may not. He uses the example of someone wanting to make £100,000 in a year playing poker, but then goes on to break down what it will take to make that much, how many hours you would need to play, what stakes you would need to play at so you won’t go bust, the stakes where you have an edge and not be playing against people better than you. Daniel also mentions things like being able to pay your rent, petrol for your car, food in your fridge and your social life, all of which would have to come out of your poker (trading) profits. This is interesting as a lot of people want to trade for a living, but rarely think about life’s costs, how they will impact your capital and work out if it’s actually doable. Just like having swings in your P&L, what if you’re hit with something like a fine or huge car repair, have you accounted for that? It’s something worth thinking about before you quit your job and trade full time.
You’re not going to be the best trader or make millions when you first start and it’s not going to happen overnight. Even if you do make consistent returns you’re part of the small majority that will ever make it that far. Daniel used sports to illustrate this point that thousands of people try to become the best at something, but inevitably 90% won’t make it. For every well-known sportsman there were probably over a thousand others who tried to be in that position, but could never make it. This seems to hold true amongst retail traders, the figure of 90-95% of amateur traders will fail is thrown out there a lot, and I guess it makes sense when you look at the world or sports, or even people who become successful entrepreneurs, not everyone is going to make it.
Daniel ends the article with the following:
“My intention wasn’t to discourage you from chasing your dreams, whatever they may be. My intention was to illustrate to you that it will require HARD WORK. It will not be as easy as it looks on TV. Are you willing to put in all that hard work, all the while knowing that even if you do, it still may not be enough?”
I really like this statement, you’re not going to achieve your dreams without hard working, but it was the “It’s not as easy as it looks” part that got me thinking about a quote I saw recently. The quote is:
“Champions are made when no one is watching”
Whether it is in sport, poker or trading this quote can be applied to anything in life. You hear how Warren Buffett has made millions from investing, you hear about traders making 6 figure salaries, you watch professional athletes win gold at the Olympics, teams winning world cups, it doesn’t matter who or what they are doing, it applies to all professions. People who do well or win seem to make it look so easy, this is probably why people think that getting into trading will make them millionaires overnight, they have watched a video of some guy make thousands of pounds in a few hours. However, it is the hard work, practice, dedication and hours and hours of time spent learning and perfecting their craft that get people to the position of success and making it look easy, we just don’t see / appreciate what goes into it behind the scenes, we only see the results.
Success is like an iceberg; people see the top (the results, the wins, the money, the success) but don’t see what goes on beneath.
A lot can be learnt from Daniel, it doesn’t matter if he plays golf or poker, what he talks about can be applied to anything you want to be successful at. It’s worthwhile reading his whole article, [CLICK HERE], you can get a much better sense of what he is talking about, but in terms of relating it all to trading, here are some key take aways:
> Manage expectations
> Manage your risk
> Treat it like it’s business
> Be dedicated and continue to learn
> You’re not going to be the best in the world over night – be realistic
> “Champions are made when no one is watching”
> Practice small and slowly build up your capital
> Track your progress and journal
Basically you have to be dedicated, have a solid plan and be willing to continue to learn and put in practice! This goes for anything else in life you want to succeed at.
Keep a look out for my next post in Forex Thoughts – ‘The Power of Hindsight’