Being my first blog post, the first thing that I want to touch upon is my experience as an online poker player and the comparisons I’ve drawn to trading. I’ve had a strong prior interest in poker, and this has developed into an interest for trading and the markets in general. I should note however, that I have close to no practical experience in trading so thoughts I have on this are based on the research I’ve done. If I come off as naive then this would be the reason why.
The main thing that stands out to me is that both poker and trading are, at its core, a game. Specifically, it seems that both are games where volatility is prevalent but having the right skills can allow a player to have positive expectation in the long-term. I’ve read a few books on how trading has evolved over time, from the frenetic chaos in the pits where brokers and dealers met eye to eye to the computer screens made up of numbers and graphs, and it’s interesting to me how greatly technology has influenced the advancement of strategy in both. In both poker and trading, the old days were dominated by those who went with their gut instinct and fearlessness.
However, technology has significantly changed the landscape. For trading, this has resulted in faster execution times and the advent of computer-driven trading strategies as well as a way to crunch huge amounts of data. The amount of data that can be displayed in real time must be staggering compared to the old times and it makes me wonder just how profitable a trader could have been if he had access to current technology in the past.
Poker has been influenced in a very similar fashion. It seems that the majority of casual players still play in the traditional brick & mortar casinos, but for the enthusiasts, the action has certainly moved to online. From my own personal experience, I would say that online has accelerated the learning curve tremendously. Just to put this in perspective, playing a live hand typically means that you’ll see an average of 20-30 hands / hour. Online, this amount is typically between 70-80 hands / hour but a person can also play up to 24 tables! I typically have 8-10 tables playing at once, which would result in ~560-800 hands / hour. That’s about 30 times the volume of sitting in a casino for one hour! I would say both poker and trading require a lot of hands on experience, so playing online results in a person gaining experience at a much higher rate.
What has also had a big impact on poker is the influence of mathematical models and statistics. Most certainly strategies based on equity calculations and odds existed before poker went digital, but combining the sheer volume of hands that can be played within a short period of time with statistical software has meant that strategies can be analyzed and dissected in a much clearer manner. Not only that, but real time data of all sorts of poker-based analytics can be displayed in real time on each specific opponent which makes it significantly easier to come up with an optimal strategy versus each specific opponent. I understand that in trading, it seems something similar has happened, with more and more traders learning about mathematical concepts to aid in trading such as stochastic calculus and numerical analysis.
In both cases though, a pure mathematical / statistical approach won’t do it. If that were the case, we could just have computers run all the strategies and sit back while we printed money. Definitely there’s a a very delicate balance between the models the strategies are based upon and how it pertains to the current environment. No day ever looks the same and it requires the players to always learn and evolve.
I guess the last point I’d like to leave is this evolution and its affect on competition. Once more and more people begin to learn how to implement technology and a more quantitative analytical approach to both games, profit margins will keep shrinking. Will something new show up to change all of this? Who knows, but right now it’s the best thing available.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.