An Interesting Statistic

We have previously written an article discussing the parallels between games like chess and poker and trading. Although we mainly used the opportunity to present a fascinating chess game by Valery Salov, poker is probably a little closer to trading, as it involves things like incomplete information, bet sizing and 'reading opponents', none of which play a role in chess. Recently a representative of tradimo.com (a trading education site) sent us the info-graphic depicted below. It lists a number of famous traders and poker players who are good at both activities as well as a number of characteristics applying to both trading and poker. What really caught our attention though was the statistic right at the end. Apparently the percentage of successful traders is more than three times higher than the percentage of winning poker players. We're not certain how this statistic was arrived at and cannot vouch for its correctness, but if it is indeed accurate, then we admit to being quite surprised (we'd have thought that the percentages would be closer together, near the lower end of the range).

 


 

Poker vs trading infographic

Trading and poker compared, via tradimo.com

 


 

One possible reason we can think of for the higher trading success rate may be the persistence of trends in financial markets. For instance, the average bull market in stocks is quite lengthy, so short term mistakes can get 'repaired' when the market resumes its primary trend. Obviously it is not that easy for futures traders, unless they have both very deep pockets and strong nerves Most successful futures traders use stops, but not all of them do. We recall that e.g. among the traders portrayed in the 'Market Wizards' book there was one quite taciturn bond futures trader who was reportedly trading huge volumes, but eschewed stops. Similar to different trading styles, there are also different poker playing styles that can be successful –  however, just as there is a consensus about the usefulness of stops in futures trading, there also seems to be a consensus that certain styles of play in poker are more likely to succeed than others. A common thread is definitely money management and the concepts associated with it. These would be aggression in playing good hands – equivalent to 'letting winners run' in trading and 'knowing when to fold' – the equivalent to cutting trading losses short.
 


 

 
 

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One Response to “Poker and Trading – A Brief Update”

  • mc:

    I have two strong reasons to believe the trader versus poker player success numbers. Because of the rake (casino take) poker is a slightly negative-sum game (with a typical 5% transaction cost), while the stock market is a zero-sum (with nearly zero transaction cost for high volume traders) or even slightly positive-sum game (because the stocks generate wealth outside the scope of the trading). The 10-12% of positive poker players is only because of the vast ocean of incompetent ‘whales’ that only lose at poker where their spending is not an investment but instead entertainment.

    Secondly, the measurement of “winning” may not be rigorous. If the benchmark for investing is the same as poker (win > loss), it is possible for two traders to own the same bond for half a year each, and both can mark it as an up year if they didnt lose money. If 2/3 of traders cant beat the market, trading is not only not a skill, but in fact is much worse than random noise (where we would expect 1/2 to beat and 1/2 to lose). This argues that most casual investors are those whales, because they are never beating the market and paying the big fees to traders who on average lose to chance.

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