Trading and Poker

Doug Kass is a well-respected writer who apparently (I have not made an intensive study) has a good track record regarding the stock market.  He recently offered some comparisons between poker and investing.  Here's a sample:

"Be as Competitive as You Can Be. Go into a poker game
and into a trade with the idea of completely destroying
your opponent or scoring a major investment coup. If you
win a pot or make a successful trade, nearly always play
the next pot or make the next trade shortly thereafter —
within reason. Although the cards and trades might break
even in the long run, rushes do happen and momentum
often feeds upon itself. When you earn the right to be
aggressive, you should be aggressive. When one has a
tremendous conviction in a poker hand or trade, you have to go for
the jugular."

Let's ignore the fact that premium sellers cannot score a 'major investment coup,' but we can get to keep the premium with no worries.  That's coup enough for me.

Logic tells me this Kass' offering is not good advice.  One trade has nothing to do with another.  My logical brain tells me this is all emotional nonsense. Each trade stands on it's own.  Winning and losing streaks are merely the result of good/bad luck and good/bad judgment.  Bah humbug.


My emotional brain sees the 'logic' of the argument.  Confidence plays an important role when trading, and if you just scored a big win, you gain confidence in your ability and your methods.  As long as the trader does not rush to make an unreasonable trade, this Doug Kass advice may be right on the money.

It's true that some strategies work best under certain market conditions and far less well under others.  The big win may  suggest that whatever it is that makes your specific strategy work well represents the current market.  If true, this is the ideal time to get right back in with another trade.  This may indeed be the beginning of a steady winning streak.  You may want to play this aggressively, but be especially careful if you are considering increasing position size.  This is not the time to get careless and take a big hit.




"I learned about your book, "Rookie's Guide to Options",
ordered it from Amazon, and spent the last few days reading it and
enjoying it.  The testimonials were so positive that it was hard to
believe that your book could be that good.  But it was!  Despite the
fact that I have been reading about options for the last few years, I still learned a great
deal from your book.  This is especially true regarding Equivalent
Positions.  Your chapter was the clearest explanation that I have ever
read.  I learned a great deal – and it made sense!  Thank you for
making the effort to put out such a fine book."  DS

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7 Responses to Trading and Poker

  1. Josh 07/13/2010 at 7:55 AM #

    I completely agree.. the edge in playing the next poker hand after a big win is partly from demoralizing your opponent. Mr. Kass’ analogy doesn’t quite fit for an anonymous, faceless market where you don’t even know if the other side of your trade is a hedge, a contrary bet, put on by a computer program, etc..
    Also, his is argument for taking advantage of rushes is bad advice in poker, where (assuming the cards are properly shuffled) each hand is statistically independent from the previous, and potentially reckless advice in trading, for the reasons you point out.

  2. Mark Wolfinger 07/13/2010 at 8:26 AM #

    In poker, aggressive players are difficult to handle. You just never know when a large bet is based on the player’s cards.
    If a trader believes in, and wants to try to take advantage of, winning streaks (I do not) then being more aggressive after a win and less so after a loss would make sense.

  3. rluser 07/13/2010 at 11:52 AM #

    My reaction to your quote from Kass aligns with Josh. One cannot bluff the market (or the vast majority of us cannot make such pretensions) as the market has no interest in our opinions or actions.

  4. Mark Wolfinger 07/13/2010 at 12:29 PM #

    Glad to hear that.
    I thought it was out to get us (smile)

  5. scott 07/19/2010 at 9:47 AM #

    I have been spending a great deal of time lately looking into making adjustments and all the various methods people use as part of developing my overall plan. I understand and subscribe to your idea that first and foremost you MUST want to own the adjusted position as a new position not just to save yourself from a “loss”. I have gone back and read some of your old posts about the three stages of adjusting and about your kite strategies. I am wondering if now would be a good time for you to post a refressher from some of the past posts and maybe some new examples of the various ways one could consider adjusting positions and how to focus on Greeks when making different adjustments. Thanks again for the great Blog and book.

  6. Mark Wolfinger 07/19/2010 at 10:38 AM #

    Thanks for the suggestion.
    FYI, I’m working on a book devoted to risk management and adjustments.
    1) Focusing on Greeks is a great way to reduce/eliminate specific risk. Good idea
    2) Kites are too complicated for a review. I never finished all I had to say about them – because so much detail is needed.
    3) New examples. My basic premise on adjusting is that examples give you a hint of what’s possible. Almost any trade that reduces delta risk AND adds positive gamma is going to be helpful.
    My point is that examples are just that. There are many alternatives you can use by modifying the examples.
    Scott, I’ll see if I can come up with a relevant post this week.

  7. scott 07/19/2010 at 10:55 AM #

    Thanks for the quick reply, I just noticed I inadvertanly did not post to your most recent Blog Entry, so thanks for finding this. Totally agree, examples are just that but they are definitley helpful for those of us only doing this for 4 months.