Howard Lederer: On Poker and Trading

[makloda]

Quote from athlonmank8:

Small losses, big wins.

I think the point is that small losses and big wins is counter-intuitive to the human brain. Our brain is wired to reward small wins rather than series of small losses. That's how people fell in love with Madoff. They couldn't resist that straight up 1% a month equity curve which appealed to their human instinct of being rewarded by small winners.

For me the main take-away form the video is that both in poker and trading (rather: certain approaches to trading, e.g. long-term mechanical trend following) you profit by trading against human logic.

 

[Trend Following]

Quote from Cheese:

This person, Howard Lederer, knows about poker and sounded interesting. But he showed that he doesn't know about trading...

I posted the video to see the debate. To see the conversation. But you do realize that there are some serious professional traders who concur with what Lederer lays out? You are welcome to your opinion, but realize that you are representing a minority view IMHO.

 

[Trend Following]

Quote from makloda:

I think the point is that small losses and big wins is counter-intuitive to the human brain. Our brain is wired to reward small wins rather than series of small losses. That's how people fell in love with Madoff. They couldn't resist that straight up 1% a month equity curve which appealed to their human instinct of being rewarded by small winners.

The reason Long Term Capital Management was also loved.

 

[Cheese]

Quote from Trend Following:

I posted the video to see the debate. To see the conversation. But you do realize that there are some serious professional traders who concur with what Lederer lays out? You are welcome to your opinion, but realize that you are representing a minority view IMHO.

My perspective is from a professional and corporate background in futures markets. You are among those who do not understand or do not realise how to utilize a market, day on day. This is very common at ET.

For the individual trader, you need to daytrade and use time, all or most of it - this means the time as between the market open and market close. A market offers a specific number of points, open to close, through its daily gyrations. Swings follow each other sequentially. Each swing offers so many maximum points. Add them together and you get the total maximum points offered for a market session.

Of course use a volatile and liquid market where there are more points offered per session (eg NG,CL). To play for optimum rewards you deploy a reliable methodology giving you the triggers to buy upmoves and sell downmoves as they follow each other sequentially.

Folding several times in poker is the same as not playing in a market serveral times. In short this is not a viable routine for an individual trader, wanting to build success and make himself rich.

 

[Trend Following]

Quote from Cheese:

For the individual trader, you need to daytrade and use time, all or most of it - this means the time as between the market open and market close.

I disagree 100%. We can agree to disagree.

 

[athlonmank8]

Quote from makloda:

I think the point is that small losses and big wins is counter-intuitive to the human brain. Our brain is wired to reward small wins rather than series of small losses. That's how people fell in love with Madoff. They couldn't resist that straight up 1% a month equity curve which appealed to their human instinct of being rewarded by small winners.

For me the main take-away form the video is that both in poker and trading (rather: certain approaches to trading, e.g. long-term mechanical trend following) you profit by trading against human logic.

That's a great way to put it.

Quite frankly trend-following (finding and TRUSTING the trend) is one of the other big issues with poor traders.

 

[Swan Noir]

I think there are few who would disagree with his basic formulation. Yet I think that you can only be Capernicus once. At some point once the knowledge/wisdom is a fairly accepted truism you are just another guy acknowledging what everyone already knows -- the earth revolves around the sun. If it is your total contribution to astronomy even in the 18th century you have not said anything.

Quote from Trend Following:



But you do realize that there are some serious professional traders who concur with what Lederer lays out?

 

[makloda]

Quote from Cheese:

Folding several times in poker is the same as not playing in a market serveral times. In short this is not a viable routine for an individual trader, wanting to build success and make himself rich.

A professional poker player would fold a hand only when the odds are not in his favor, not because he enjoys folding. The point Lederer makes is that a pro player has no problems (psychologically) folding dozens of times in a row, even if that means taking small losses and patiently waiting for a hand that tilts the odds in their favor.

Are you saying an individual trader in order to be successful and rich has to take trades even if the odds (=expectancy) are against him? That's gambling, not trading.

 

[Scataphagos]

Poker is not much like trading because of the heavy influence of bluffing...

If you want to compare trading to a gambling game, suggest comparing it to card counting in BJ.

 

[MarketOwl]

Comparing trend following to poker? Geez, are we running out of ideas and material to sell to the public? Folding = taking small losses? Nope. In limit and no limit holdem, there are blinds and no antes. So if you fold outside of the blinds, you are not taking a small loss. You are just watching.

Also the greatest poker players in the world didn't become great poker players by folding a lot. They became great because they knew how to read the other players and get inside their heads. Like Phil Ivey. He's one of the loosest players around and probably the best player in the world. He would crush Howard Lederer, the player who folds a lot, in a poker game.