Now, for a change of pace, something sorta random and non-technical. This blog post is more of a "lessons learned" type of post. A decade ago or so I got pretty hard-core into equity and futures trading and I came out of it in the red (although close enough to break even), however, I gained a lot experience and "wisdom" in the area that can't be quantified. For the last few weeks I've been hitting the freebie online Poker (Hold'em) games at nights and while learning the game, some patterns and parallels with other aspects and activities in my life started to become clear. So here's my list of things I've noticed:
* It's never, never, never, ever, ever too late to fold. So what if you made a judgement mistake? So what if lady luck effed you with that lousy flop? So what if you thought you had a strong hand and went neck-deep upping the ante? So what if you'll be left with only a pittance of money to cover couple blinds? It does not matter. Better to lose 80% of your money in one hand than 100% of it. Exact same concept applies to equity trades! So what if that strong momentum fizzes and leaves you without a floor? So what if that piece-of-junk stock you are shorting suddenly comes with spectacular good news? It does not matter. Cover/sell, take your loss and move on.
* Many small gains are better than a "slam dunk" gain. Targeting your game for methodical, measured small gains will, at best, make substantial gains over time; at worst, it will let you stay in the game for a long time. Don't get me wrong, it takes quite a bit of discipline not to go all-in with a strong hand, but letting your impulse to go all-in will likely leave you all-out sooner or later. Not to say that you shouldn't take risks, by all means you should. But you should take calculated risks, not risks based on pot size. Very similar dynamic happens in equities/futures trading. If you are hunting around to go all-in on a "slam dunk" stock, you will be all-out before you can realize the mistake you made. If instead you go for trades that you perceive will yield a modest return (whether it's a 20-second round-trip trade or a week-long trade it's irrelevant), there's a decent chance, you'll make good money in the aggregate.
* You don't have to win every hand to do well. In fact, I'd say (based on my empirical observation, not on stats), that, counter-intuitively, the more you fold the better you'll do in the long run. If not winning every hand bother you, if the thought folding with pocket aces revolts your stomach, then you are almost guaranteed to do horribly at poker. Again, same parallel can be drawn in trading. You don't have to make money on every trade to do well. So long as you make the same or more than you lose on another trade, you'll be fine.
* Check your emotions at the door. If you let your emotions (positive or negative), your prejudices and your biases be part of your game, you are in for a lot of trouble and disappointment. For example, if you draw parallels between folding and cowardice, or if you take someone raising your bet as an attack you must defend against, boy, it will be fun to watch you lose all your dough really fast. Smart decisions aren't made with emotions. Smart decisions, in poker, are made with data, facts and a decent grasp of probability. See the pattern of parallels? Indeed, a very similar concept applies to trading. If you take a loss personal, if you resent the market (or the bulls or the bears) when a trade goes the other way (and against you), they you are in for a rather unpleasant and money-losing experience.
* Cannot possibly be emphasized enough and over and over again: patience is a virtue (and your best friend). You will often be dealt crappy hands and often followed by even crappier flops. At a certain point after you've used, say, 25% of your chips just in blinds and then folding, you start getting uneasy, restless and get the itch to make bet meaningful amounts. If you know how to keep your composure, if you know how to wait, if you can control that impulse to get some momentum going, you will do much better than the player who at that same point says/thinks "Screw this, I'm bored. I want to play" and then goes and makes a horrible bet. If you begin to get bored and restless, stand up and take a break. Same dynamic goes on in the trading world. Often you'll see stocks in you "watch list" do nothing, maybe the market is treading water, and that's the perfect time to either make horrible trades or take a refreshing break. Patience, patience, patience.
Do you have any parallels to share? Do you think the same parallels above apply to other aspects of our lives? If so please feel free to comment. Bear in mind that instead of having some asinine CAPTCHA image that no one can read, I do manual filtering of spam; however, I do not censor or otherwise leave out real comments, I simply filter out all the spam.
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