Yesterday, I wrote about particular hand in a particular game of poker. I tied that hand back to a fundamental principle in trading (Let the market come to you.) As I was writing the piece, and right after it went up, I thought, “My, aren’t you clever?” After some reflection about that, and some thought about what I would write about today, I realized that the piece I wrote really is not that clever. The fact is that I used the poker analogy because trading is gambling, and if anyone tells you any different, just look that person in the eye and ask, “Tell me how it is not gambling.”
So, in my thoughtful place about yesterday’s piece, it occurred to me that the poker story I told you yesterday had more merit than a clever analogy; it has basic truth in that poker is gambling, and gambling can be a problem for many people. I see it all the time in the questions I receive. So, I have decided to carry this “analogy” further because the truth is the markets are not going away. People will continue to gamble in the markets, and so, for a little bit at least, I will talk about my gambling, as I am a gambler, and have been my whole life. No 9-5 job for me. Let me risk what I have to gain what I get. I am a gambler, and I am not alone.
So my writing more about poker and the markets will hopefully accomplish two things. The first is that I might get others who trade, or who wish to trade, to see that trading is gambling, and that to be successful, traders must adapt their trading behavior to that reality. The second accomplishment I hope to achieve goes beyond just having you recognize that trading is gambling. I hope to teach you about your gambling self, enough so that you will either improve as a trader or get out of trading …
I felt good. I was back in the game with a healthy stack of chips and lots of confidence. My ace-high flush took my nemesis down a notch or two. The “bully” who had been pushing me and my short stack around now had less chips than me. So, when the next deal delivered me pocket queens, I lit me up with adrenaline. “I was on a roll,” I thought. So I immediately pushed all in with the queens. Everyone folded, except for my nemesis. He called and flipped over two queens. I laughed. “Okay so we split the pot. Just as well,” I thought. The flop produced two hearts. The turn brought another heart and the river a fourth heart. I did not have a heart in my hand, but my nemesis did—the queen of hearts, and so he won the pot with a flush. To say I was stunned or shocked is an understatement. What happened just does not happen, at least not often. So in a flash, I went from some 15,000 chips to less than a thousand. With the blinds at one and two hundred, the picture looked bleak.
One renewed lesson for me in that next hand was that anything can happen in poker, just as anything can happen in trading. Both are subject to the randomness of the “deal,” and in trading, as in poker, the “sure win” really is not so sure at all. Overconfidence can be as deadly as a lack of confidence. Just as the cards come out in poker, so does the news come out in trading, and that can change everything quickly. Knowing this, I will reinforce what I already know – when I get a big win, I will slow my mind down. I will not get caught up in the adrenaline rush of victory. I will play more slowly and carefully.
The truth is had I followed my number one trading edict—protect and preserve my capital—I might not have lost most all of my chips. True, it is likely he would have gone all in no matter what I bet, as he was “steaming” from his big loss the hand before, but I could have played it differently and have in the past when adrenaline did not take away my rationality. I have folded pocket aces, for example, in situations that threatened my whole tournament. Pocket queens (or aces for that matter) are by no means a sure winner pre-flop. Sometimes we just have to let go of what “might” win to make sure that down the line we can play a hand (or make a trade) we know has a better chance of winning.
Stay tuned because this tournament I am writing about has a couple of twists and turns that will enlighten all of us to the possibilities of not giving up, even in the face of what appears to be utter and final catastrophe.
Trade in the day; invest in your life …
