Why Trading is So Hard

Poker taught me a lot about life, from how to control my emotions, to grasping concepts probability including bankroll management. Poker can explain why trading is so damn difficult, and why the odds are stacked against you. Let me explain.

1. Sample size

Gambling takes advantage of our psychology. Humans are very quick to take credit, or blame external factors for their successes and failures. When I started poker, I played 70,000 hands in my first 2 months, and I did quite well. Then things took a turn for the worse and I almost lost my entire bank roll. I realized there is such thing as running good, or running bad. After looking at my advanced data, I had simply been playing a slightly losing strategy and running incredibly well. For 70,000 hands… that’s right. After further research I learned that the general consensus is that 40,000- 100,000 hands is considered a reasonable sample size to judge your strategy depending who you talk to.

1. Bankroll management

I mentioned I almost went broke, and this is where the emotions and ego came into play. It took a long while to realize my strategy wasn’t up to par, by this point I had almost no bankroll left. I studied hard and luckily made it back and continued to do well from that point forward. Cash games require you to have approximately 40 buy ins as a minimum to be able to weather bad streaks. For tournaments you need closer to 100 buy ins.

1. What does this mean for trading?

You can’t just trade what you are willing to lose, in fact you should start by trading 1/100th of what you are willing to lose (if you are going to trade). It will also require not hundreds, but thousands of trades, maybe tens of thousands of trades to even have an idea of whether your strategy is winning or not.

But let’s assume you weather the storm and come out after all of that as a winning trader, let’s assume you have an edge over the market of 55% which would be considered quite exceptional (over our very large sample size). Congratulations, you are earning a 5% edge on 1/100th of your “willing to lose” portion of your investments… whoop de doo, and now you are taxed double on that money because it can’t be written off as capital gains.

You have to be seriously good at this stuff to win, don’t fool yourself into thinking it is easy or that your strategy is “winning” because it has worked for a month or two.

Be incredibly cautious of anyone selling trading strategies. Be incredibly cautious of YouTubers who have “made millions”. Even if they have, I guarantee they have little evidence to suggest they didn’t just run good.