Monday, December 19, 2011

Going on Tilt

Poker players understand that when a player gets an especially bad beat, he is likely to go "on tilt" and especially when its a large pot. This generally means the player is likely to play the next few hands aggressively on weaker cards and in general make poor judgements trying to win his money back. Whenever anyone at a table has a bad beat, the rest of the table will turn on the player like vultures hoping to take the rest of his chip stack.

This is relevant to traders because a lot of traders approach trading like they approach gambling. A strong belief in luck and other superstition, trading larger size after a beat, bragging about your huge wins but not mentioning your losses, etc. are signs that you may be approaching trading as an alternative gambling system.

And just like gambling, most players will end up losing most of the time with an occasional win that you brag about. If this is the case with you, you are better off going to the casino and playing blackjack -- at least you will get free drinks.

A significant cause of a bad beat is the unexpectedness of the result. The player was expecting a win -- possibly a large win -- but was shocked to end up a loser. This shakes the player's confidence in his ability to read the cards and analyze the players' moves and in general play the game successfully. At this point he needs to win just to restore his confidence and he needs to win quickly. This urgent need will impair his judgement and force a lot of errors. Going on tilt in trading is psychologically very similar.

The way to approach this is to avoid having a large beat. Always enter fixed risk and size. Over time as your consistency improves, you may choose to increase the size but you should never trade arbitrary size just because you are "feeling lucky". You should also never loosen your stops or add-on to a losing position, since large losses are what will impair you psychologically.

In addition, your daily loss limit needs to be fixed. Just as you would leave the table when you realize you are the worst player, you should stop trading for the day if you have been beat 2 or 3 times in the day. Over time, the knowledge that your downside is limited per trade and per day, while your upside is much larger will give you confidence and eliminate the gambler's mentality.

1 comment:

  1. Good post. If we notice emotional upset in ourselves we should seriously consider taking a healthy break or even quitting for the day. I’ve noticed that what puts me on tilt the most is the trades I declined to take, and then watching the price action do exactly what I expected it to do, but without me. This was a subtle but lethal type of tilt that would cause me to lower my standards and start taking half-baked trades which usually failed.

    There are two essential skills that a successful poker player can bring over into trading which will give them a valuable head start. The first is sound money management and the second is patience/emotional control. Unfortunately, very few even successful poker players have the financial stability to attempt a futures trading career. Don’t give up your day job to play poker.