Trading is a lot like Poker
May 16, 2023·1 comment·In Brief
Most traders don't think of themselves as poker players. Yet hedge fund managers who win poker tournaments systematically outperform their peers. The correlation suggests something fundamental about decision-making under uncertainty is being overlooked in how traders develop their skills.
• Both operate under incomplete information against skilled opponents. Trading and poker share core mechanics: repeated decisions with unknown probabilities against financially-motivated competitors. Yet traders rarely study what poker players have learned about discipline, positioning, and bankroll management.
• The attributes that create success transfer across domains. Tight/aggressive discipline, emotional control under variance, proper risk management, and calibrated confidence aren't poker-specific or trading-specific. These principles travel.
• Research quantifies what intuition suggests. Hedge fund managers with strong poker tournament results produce significantly better returns. The effect strengthens with tournament size and prize pools, indicating skill rather than chance.
• This reshapes what traders should actually study. If poker performance predicts trading returns, then trading skill might be less about market prediction and more about decision-making architecture under uncertainty.
• The philosophical difference matters most. Traders often treat drawdown as noise to overcome. Poker players understand variance as structurally inherent to the game itself. Investors appear cognizant of this gap. Net flows increase to funds after manager poker wins.
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
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Comments
Loved it!
Thanks for posting this highly relatable note. A must read for non-finance types in particular
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