VIEW: Poker has a lot to offer to the Robinhood generation

As someone who has played the sport at the highest level competitively, I see a lot of similarities between financial markets and poker. Some of the most decorated money managers in the world such as David Einhorn and Marc Lasry are regularly seen competing against the top pros. Further, there are numerous examples of poker professionals landing jobs at leading investment management firms.

When it comes to developing a consistent system or a framework, risk management, working on our psychology when thinking about risk-reward, bet sizing as well as always being open to adding to one’s knowledge toolkit, traders can benefit immensely by using some concepts from poker.

1) System/framework: In the markets, a trader can be using either charting, momentum oscillators, fundamental analysis and economic indicators to set up trades and look for suitable entry and exit points. There are many systems that work and there is no one single correct framework. The trick to find that system which most suits your personality and trading style. In poker, we have all kinds of players at the very top. There are old school strategies such as using tells and tendencies, quant driven players using GTO (Game Theory Optimal Strategies) and then there are exploitative strategies. The game is always evolving and dynamic in nature, just like the markets. So, one must keep adjusting his/her system.

2) Risk management: One can learn a great deal about bankroll management and bet sizing from poker. The goal is to play with only those many chips in a day so that even if one loses, there is always a tomorrow. We have heard countless stories of market participants losing a chunk of their capital on a few bad trades. Playing poker teaches you about game selection, the stakes to choose and when to size up when the odds favor you.

3) Learning: Analysing your hand history is crucial for future success. Good poker players are always looking to improve their gameplay. Poker is not about winning or losing, but about making the right decision. Some of the top professionals spend many hours a week breaking down their hands and discussing it with peers and coaches. Traders should deploy a similar approach. It is not just about the P&L but also the tactical approach used to generate profits and avoiding substantial losses.

4) Psychology/ mental toughness: As they say in the markets, fools and liars call tops and bottoms. There is no trader who has not lost money or been on a consistent losing streak for a short while. Similarly, I don’t know of any top professional poker player who hasn’t been dealt with back to back blows/downswings. This may be a result of bad judgement or plain bad luck. But at the end of the day, the losses are real, and it takes courage and motivation to bounce back. There is a reason why a lot of avid poker players at American universities find their way to hedge funds and proprietary trading houses. The game can teach you how to stick to your core system and principles when faced with drawdowns.

This is where the statistical term “variance” comes in to play. In poker, one may have big losses and ‘bad beats’ in a short duration while still sticking to an optimal strategy. However, in the long run, you can expect the variance to smoothen out to give you consistent returns, based on your level of skill. It is about sticking to a sound system or strategy irrespective of the swings and trusting the process.

There are many professional Poker players who dabble in the markets and vice versa. Both fields hold many similarities to a mind conditioned to understand an environment involving calculated risks. Intellectually challenging and thrilling, these two professional pursuits are where all the edges are to be gained!