Treat your capital like poker chips

I once walked into a casino and it was the most depressing scene of unhealthy, mindless, and hopeless behavior I had ever seen in my life.  Until… I got to the poker rooms!   In these separate rooms, there were smiles, concentrated faces, and, yes, even some sad and depressing figures.  The difference was that those playing poker were actually playing!  There was gamesmanship involved.  They were talking.  Joking.  Planning.  Executing.

Trading is very similar to poker because it requires a similar mindset.  You are trying to wait for the odds to turn in your favor and execute only when it is the right time.  Especially in the days of the trading pits, there was talking, bantering, and joking with fellow traders.  Today, that happens mostly on social media, chat rooms, and forums.

The most important similarity between trading and playing poker for me is the relationship to the capital.  When I play poker with friends the buy-in, the money we use to make the game “interesting,” is usually $10 or $20.  That money comes out of my “entertainment” budget line.  To play the game, we all have the same buy-in and we get the same amount of chips.  The chips have only a nominal value.  They have no inherent value.  The value is the entertainment and that value is assigned each month when we make our budget.  You should trade your capital the same way you play with poker chips, using it as a metric to keep score, but not as something that has inherent value.  The value-decision should be done before you start trading when you decide how much you should allocate to trading as an activity, period.  Just like with the poker game, the moment you start trading you have to have settled how much your “buy-in” is going to be.  After the game has started, you can’t worry about the initial buy-in anymore.  You have to only focus on the “chips”.

Therefore, it is critical that:

  1. Decide your “buy-in” at a level that you are comfortable losing entirely
    • Just like my “entertainment” line item, where I assume that I will “loose” the money in return for a good time with my friends, in trading, you have to recognize what is the purpose of your capital.  If it is meant for college savings, don’t use it for trading…
  2. Play
    • Be clever, thoughtful, try stuff, solve the puzzle, execute.  But don’t stress.  You can’t play well if you are stressed.  The stress should be limited to the buy-in decision not to the trading decisions afterward.  


What’s your experience with playing poker?  Do you identify with the mindset I describe?   Leave me a comment below and improve this conversation.


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