Top 5 Things Cryptocurrency Traders Can Learn From Poker Players

This article was written for the 21cryptos' magazine's first edition. If you liked this article, make sure to visit www.21cryptos.com or reach out to their Twitter account to find out more! As a promotion for their first edition, the magazine is going at only $10 $5! Without further ado, let's get straight into the article!

Introduction

Prior to trading, I played poker actively for about 6 years. When starting out and after two years of paying tuition fees, a turning point for me was when I read Dusty Schmidt’s Treat Your Poker Like A Business, that helped transition my mindset and game from one of taking uninformed gambles to taking systematic and calculated risks.

Once I started trading, I quickly realized that many of the lessons picked up from the tables were directly applicable, familiar concepts such as bankroll management, tilt, and positive expected value, come to mind.

In this article, we’ll go through 5 key concepts, explain how they are related to trading, and what we can learn from them to become better traders.

1. Managing Your Bankroll & Protecting Your Capital

The term bankroll management in poker refers to the same risk management concept in trading.

Just like how professional poker players compete at a stake where their bankroll covers at least 100 buy-ins, professional traders typically risk no more than 1% per trade. This is only a general guideline, as more aggressive players may play with just 20 buy-ins, or a trader risking up to 5% a trade.

Protect your capital! Trading takes a lot of skill, and if you think that everyone trading is making money, think again. It’s not that making money is difficult (especially in this cryptocurrency bull market), but rather, the difficulty lies in preserving capital and keeping the profits. A common saying goes, “take care of your losses, and your profits will take care of itself.”

Trading cryptocurrencies come with a high degree of exchange risk. Your capital is your inventory, and there's a huge risk not only in losing your money, but also your time invested if the site you're on shuts down tomorrow. Keep you money with reputable exchanges, spread it out over various locations, and never invest more than you can afford to lose!

2. Dealing with Variance & Playing a +EV Game

Variance is basically that which deviates from the norm, be it good or bad. And this is where the concept of expected value comes into the picture. Short term variance is part of the game, and it is important to understand that trading is a marathon, not a sprint. The difference between gamblers and professional poker players or traders, is that the latter focus on the outcome of playing the long game.

To avoid being a gambler, one must make trades that have a positive expected value. Do you know the expected value of the trades you make in the market? To really understand what are your odds of making a profit, and the expected size of that profit, requires establishing a set of rules and testing those rules over a large number of trades so you can determine the expected value of your strategy rules.

You may want to buy any coin that has strong fundamentals and a market capitalization of $10m or less, or one that has retested the 200 MA support. Sounds like a good idea, but is it? Only testing that rule over many trading examples and market conditions can really tell you if this simple approach to the market is an effective one.

Strategies do not have to be complicated. They do need to be well tested! If you approach the market without a set of trading rules and an understanding of the expected value of your trading approach, you are a gambler. Yes, you will get lucky and could make great profits. However, in the long run, the profits of the gambling trader are just short term loans.

3. Knowing Your Risk Tolerance

As Dusty Schmidt put it, “part of growing your business is coming to an understanding of how much risk you can tolerate.”

If you have a mindset that you must move up [in stakes] quickly, trade a large size, risk a large amount, and manage your bankroll liberally, you’re setting yourself up for a really big mistake in the long run. That is a gambler’s mentality with which few people can succeed long term.

I look at trading not as a gamble, but as a skill. I want to make a small business out of that skill, and like most businesses, I don’t want to risk having to close up shop. Staying open is the goal first and foremost; maximizing profit is second.

4. Determining Your Style & Knowing When You Have an Edge

Just like how there are different playing styles in poker, such as loose-aggressive, or tight-passive; there are various styles of trading and investing, such as day trading, scalping, position trading, growth investing, value investing, and many more. As an aspiring trader, it is important that you understand your own circumstances, risk preferences, goals, and develop a strategy that suits your style. Read the crypto trader’s essential starter kit here: https://alunacrypto.blogspot.sg/2017/06/essential-beginners-starter-kit-for-cryptocurrency-trading-bitcoin-altcoins-ethereum.html

To find an edge in poker is to understand who the fishes are at the table. From the Rounders movie, "listen, here's the thing. If you can't spot the sucker in your first half hour at the table, then you ARE the sucker." Also, having an edge means to play hands with positive expectancy, knowing when you have a better hand than your opponent and maximizing your profit, while minimizing losses when behind.

In trading, this is akin to first understanding the general market conditions, then taking trades with positive expectancy, that is, trades that stand to win more than they lose over the long term, so that you make more in your winning trades than lose in your losers.

A common mistake new traders make is in being myopic about technical analysis, without factoring critical overarching concepts such as the general market conditions, market cycles, trader psychology, and risk management. Why sit at a table with 8 sharks? If general market conditions are not favourable, don’t take the trade. In poker, you typically play less than 15% of your hands in a full ring table. Similarly, in trading, sit out when you don’t have an edge.

5. Managing Your Emotions

Traders who have played poker should be familiar with something called “going on tilt.” In the poker world, this refers to a state of psychological or emotional frustration or confusion that causes the player to start making decisions that are less than ideal. Usually, this means adopting overly aggressive strategies that are unlikely to work, and which the player would never use in a more psychologically sound state of mind. Poker players usually go on tilt because they are frustrated with their own mistakes, with bad luck, or with other players. Does that sound familiar?

If we are not emotionally prepared for the possibility of losing, we are more likely to be thrown by losses. We set ourselves up for the tilt state by needing and expecting to win, rather than letting probabilities play themselves out and accept that there will be winning and losing periods.

Emotional control can also be improved by understanding probability and variance, and setting long term monetary goals instead of short term ones. Respect your risk management plan, and lose your ego. When you know you are on tilt or off your A game, the faster you get off the tables (or stop trading for the day), the more money you will save in the long run.

Conclusion

There is a multitude of lessons that traders can learn from professional poker players, since both involve similar characteristics of incentive, risk taking, strategy, probability, emotions, psychology, and mental discipline. Success is determined not so much as which strategy but the determination and discipline by the trader to carry out the plan. At the end of the day, be careful not to treat trading like gambling. Remember, trading is a business more than anything!

This article was written for the 21cryptos' magazine's first edition. If you liked this article, make sure to visit www.21cryptos.com or their Twitter account, to purchase their first article at an affordable price of only $10 $5, and enjoy over 50 pages of cryptocurrecy market insights, analysis, and articles. Also make sure to look out for future editions as I continue to be a guest writer for 21cryptos.

Trader Dad: What Makes a Successful Trader? Trading Advice From My Old Man

Since I can remember, I haven't lived with my dad. I barely meet him since he worked overseas for the most part, and never knew much about him. Funnily enough, I never knew he traded financial markets, until after I got into trading and brought it up with him.

Recently, I asked my dad to write a short introduction to trading, something that would be useful for people starting out and dipping their toes into trading financial markets or cryptocurrencies. Even though he doesn't trade Bitcoin or cryptocurrencies (yet), he's had decades of experience navigating the markets, and I hope this short and simple post can give you some insight into what an old-timer has to say about becoming profitable at trading.

So here goes...



Dear Trader,

I have been trading in the “futures market” similar to what we now refer to as the Exchange-Traded Funds (ETF) market for the last 30 years.

I would like to share my experience and knowledge with people that are interested in financial trading (*this is a short introduction and not meant to be a recommendation of any trade that anyone might like to take).

To make it simple, I will sum up the most important elements in making a successful trader. Successful traders are those that make a good and correct decision and/or action in the following:

1. Money

2. Time

3. Target


1. Money

A trader need first to decide the amount that he is prepared to invest or the amount that he is willing to cut loss in each trade and his overall trading.

One must be disciplined with this decision making and necessary control action is very important.

Unnecessary losses usually occur when one overtrades, or holds on to a position that had a big loss for too long that eventually that he cannot afford.


2. Time

Time is a very important factor in many ways:

1. Trader needs to spend time to analyze and decide on a particular trade.

2. Trader needs to decide if short term or long term trading that he/she will like to be working on.

Not spending enough time to understand the market that you are trading can result in unnecessary trading losses.

There are much to learn in trading such as margin requirement, historical high and low level, economic fundamental of the product, average cycle period of high and low, stop order, technical analysis, trading hours, daily swap value of the product, etc.


3. Target

Target refers to both sides of your exit point on either profit taking or cut loss.

A successful trader is more likely to be a person who is very disciplined in his execution of trade.

Trader should always remember that “the market is always there”, which means that one should protect his margin for his future trade.

Having a clear target will eliminate the emotional trading in your trade.


Other Factors

Other than those points in trading that I had mentioned above. I will also like to bring up some other factors and risks concerning futures trading in the modern market as follows:

A. Price Manipulation

Trader should be aware that the globalization of the modern world and the advancement of technology in computers and the Internet had made it very easy for the banking cartel to manipulate the prices throughout all the trading platform from index to currency to commodity such as gold and silver and all other counters.

This situation had been persisting and intensified over the recent years.

The high share index, the low price in gold price and silver are the result of such manipulation.


B. Stop Hunting

Trader will notice that there is always some sort of taking out cut loss movement occur before price is going to make a big move in the opposite direction are clear evident of the price manipulation by the major player in the market. Read more about stop hunting on Investopedia.


C. Economic Data

We used to depend on the economic data issued by various government department to plan our trade.

Trader should be aware that these data are no more as accurate and reliable in the recent time.


D. Major Economic Situation

Trade should be aware of the major economic situation which is going to have a major impact of the world economic in years to come such as:

1. Excessive quantitative easing (QE) (money printing) by various government over the years

2. US national debt of 20 trillion dollars and its debt ceiling

3. The death of petro-dollar

4. The conflict between US with Russia, North Korea and other middle east countries

5. Financial difficulties in the major bank in EU and the possible breakup of EU

6. The purchase of physical gold by central bank


Conclusion

The present market situation is critical and it represent a good opportunity for those that have prepared for the volatile market movement ahead. Do your study, prepare yourself and this will be a once-in-a-lifetime opportunity for many traders. Good luck and enjoy your trading.

Thank you.


Yours Sincerely,
Sam Lee