Harvard Poker Pro Says Texas Hold ‘Em Can Teach Traders to Fold

By Mason Levinson
Nov. 20 (Bloomberg) -- Brandon Adams, who teaches behavioral finance at Harvard University’s Department of Economics, says some of the best candidates for Wall Street trading jobs are the professional card players at FullTiltPoker.com and similar Web sites.
"They’ve essentially been the survivors in the system, a very difficult system where 95 percent of people lose money,"
the 30-year-old Adams, who plays at the site, said in a telephone interview. "Anyone smart enough and disciplined enough to survive that system is probably going to do very well in the trading world."
An increasing number of hedge funds and brokerages are scrutinizing professional poker to find talent and analytical tools, according to financial recruiters including Options Group, a New York-based executive-search company. Susquehanna International Group LLP, the Bala Cynwyd, Pennsylvania-based options and equity trading company, uses poker to teach strategic thinking.
"Someone who has made a successful living as a poker player for a few years would more likely be a good trader than someone who hasn’t," said Aaron Brown, a 53-year-old former poker pro who is now a risk manager at AQR Capital Management LLC in Greenwich, Connecticut, which oversees $23 billion.
"They know to push when they have the edge and they know how not to bust, and that’s a tough combination to find."

Skill Sets

Skills that define successful traders -- rational approach toward risk, speedy decision-making under pressure, discipline and a well-trained memory -- are the same ones that separate elite poker players from ones known as "dead money," financial recruiters say.
After the World Series of Poker started in Las Vegas four months ago, Options Group recruiter Simon Satanovsky said he received a hedge-fund request for online poker players with no financial experience. He wouldn’t identify the client.
"Before, we were asking about GPA or the Math/Physics Olympiad," Satanovsky, a former Russian national bridge champion, said in a telephone interview. "Now, we’re asking questions about poker successes."
Satanovsky said Wall Street firms and recruiters have been paying increasing attention to poker players as job candidates since 2003, when amateur Chris Moneymaker beat hundreds of professionals to win the World Series of Poker’s No-Limit Texas Hold ‘Em main event.

The Right Game

Adams, who has taught at Harvard in Cambridge, Massachusetts, each spring since 2003, said disciplined poker players can be spotted on sites such as Full Tilt and PokerStars.com waiting for particular games, not tempted by those outside their area of expertise or financial comfort level.
Their self-control and confidence would be useful in trading where large profits are possible, the probability of going broke high and the competition formidable, he said. Adams cited as an example a trader who notices a slight imperfection in the way options are being priced, then works to come up with the proper bet per trade.
"In poker, people are used to not sitting back and waiting for the fat pitch," Adams said. "They’re used to skirting the edge of ruin and they learn the tools of how to do that."
Susquehanna has been using poker to teach its new traders since it was founded in 1987, said Pat McCauley, who heads the privately held firm’s trader-development program.

College Friends

The company’s founders played the game as college friends at the State University of New York-Binghamton. Susquehanna has held in-house poker tournaments to recruit traders and monitor decision-making skills.
The trainees learn to use information they see in the marketplace to infer what motivates others, helping them make better prices. It’s the same way poker pro Phil Ivey, considered among the game’s greats, makes bets based on what he sees among his opponents, McCauley said.
"What professional poker players are really good at is taking this information that’s relatively subjective, quantifying it and making it objective, and that’s what trading is about," McCauley said.
The ability to write complex poker algorithms, which either run poker Web sites or try to beat them, will get hedge funds interested, said Todd Fahey, a recruiter who specializes in quantitative finance at New York-based Exemplar Partners.
"There have been a few guys that I’ve placed in the industry that come from the poker software side of the house,"
Fahey said in a telephone interview. "Two Sigma, D.E. Shaw and any of your larger computationally-based hedge funds are going to want to see people like this."
Two Sigma Investments LLC and D.E. Shaw Group, both based in New York, declined to comment.

Begleiter’s Try

The worlds of poker and finance often intersect. Steven Begleiter, who headed corporate strategy at Bear Stearns Cos. before its 2008 collapse, earned $1.6 million earlier this month with a sixth-place finish in the main event. Greenlight Capital LLC founder David Einhorn was 18th in 2006. The annual "Wall Street Poker Night," benefiting Math for America, was started by billionaire James Simons, the founder of hedge-fund firm Renaissance Technologies Corp. This April, the $5,000 buy-in tournament drew 100 entrants -- 90 percent from hedge funds or other Wall Street jobs -- raising $1.3 million.
Even though poker players make good traders, they aren’t necessarily good with their own investments, said Adams, adding that he is almost "famously unsuccessful" as an investor.
"Poker players are lazy and they’re gossipers," he said.
"If you look at the way they trade, they tend to latch onto other people’s ideas."

Texas Hold ‘Em

One person who has chosen poker over finance is Joe Cada, who this month outlasted Begleiter and Ivey at the main event final table. Cada, who plays the game professionally, was first among 6,494 entrants and took home the $8.55 million top prize, giving half to financial backers Cliff Josephy and Eric Haber, poker pros with Wall Street backgrounds. The Texas Hold ‘Em contest had a $10,000 entry fee.
"As a little kid, I used to watch the stock markets day in and day out," Cada, 22, said in an interview. "My parents always thought I was going to get into banking or become a stockbroker because I was really good with math and logic, and I was obsessed with money."
Cada said he plans to remain a poker pro. AQR’s Brown, the author of "The Poker Face of Wall Street" and a life-long player, long ago gave up the game professionally after a couple years of trying.
"I eventually decided finance was easier," he said.

Hey almbayrak66, it looks like this article is for you!
I don't come from Harvard (otherwise i would probably be with Goldman now ) but I think I told you roughly the same stuffs no ? The main trick is both trading and poker are probability games where you need to have a positive expectancy and survive long enough to make this positive expectancy happen.

This said, the sad truth is no one has an idea of what skills trading requires : years ago, armies of economists were hired for trading positions, then came the mathematicians (I come from this generation) then now the poker players, what will be next ???

Hi Sauros, unfortunately I have some economics background, this is causing some forecast expectations, " to high, too low, budget deficit, trade deficit, not sufficient QE...) a succesfull trader must not have any forecast, no forecast at all. Just follow the trend, stay on the table. To me poker players with no economic background are optimum choice for trading. Follow other's moves, watch bluffings. I study weeks for recognition of charts and chart patterns. Now I'm trying to forget all I know about charts maybe only daily charts for main trend. I never had a chance to try make a living with professional poker, for this reason it may not be appropriate to make a comparaison, but my feelings say professional poker playing is harder than professional trading. At least there is no trend there in any sense. No big guys to follow.

What is next? How about hollywood stars!

Sauros wrote:

I don't come from Harvard (otherwise i would probably be with Goldman now ) but I think I told you roughly the same stuffs no ?

haha nice quote, and like i've said before, some of the best prop traders/fund managers i hear about are history/philosophy majors or have passions in such areas. Its a type of thinking that breeds the success. All this quant stuff is great and useful tools, but there is always that social aspect where neo-social studies and quant studies are limited. The power of behavioral finance/econ is possible where academia is headed econ/finance world.

-snapman

almbayrak66 wrote:

a succesfull trader must not have any forecast, no forecast at all.

I would like to respectfully disagree. I understand where you are coming from as I myself am a practicing technican as well. However, though many people make respectable livings by forecasting short and long time frames and use economic theory in conjunction. To be fair, I would say people have all sorts if different styles that work for you and as a trader its key to develop your own style and systems to be successful. All in all I like your thoughts.

-snapman.

" However, though many people make respectable livings by forecasting short and long time frames and use economic theory in conjunction. "

Hi snapman, you are right, I should have said "a succesful day trader",
in reality as day traders we are fighting for dimes while mid-long term traders play with golden coins.

almbayrak66 wrote:

" However, though many people make respectable livings by forecasting short and long time frames and use economic theory in conjunction. "

Hi snapman, you are right, I should have said "a succesful day trader",
in reality as day traders we are fighting for dimes while mid-long term traders play with golden coins.

Ahh well I will have to completely agree with you then ... I would be a harecore scalper as well if i didn't have to manage taxes *sigh as @sauros says, its akin to playing video games to an extent ;-)

almbayrak66 wrote:

Hi Sauros, unfortunately I have some economics background, this is causing some forecast expectations, " to high, too low, budget deficit, trade deficit, not sufficient QE...) a succesfull trader must not have any forecast, no forecast at all. Just follow the trend, stay on the table. To me poker players with no economic background are optimum choice for trading. Follow other's moves, watch bluffings. I study weeks for recognition of charts and chart patterns. Now I'm trying to forget all I know about charts maybe only daily charts for main trend. I never had a chance to try make a living with professional poker, for this reason it may not be appropriate to make a comparaison, but my feelings say professional poker playing is harder than professional trading. At least there is no trend there in any sense. No big guys to follow.

What is next? How about hollywood stars!

A few decades ago, the US tried to put an actor at the white house, not sure it worked that much... This said, I would be happy to put all my money in the Megan fox Capital Management fund

I'm not sure that you should "forget" anything you've learned I guess most of the time in pain (and probably with a cost...).
Every part of your knowledge resulting from your trading experience helps to define what will become finally your own trading style. I believe what will ultimately leads you to constant profits is precisely that combination of skills and techniques. Personally I like to mix several approaches: technical analysis, charts, fundamentals, maths, market sentiment reading and I try to "trade the traders" rather than the price: in a given situation I like to think "here the technician crowd could go in", "here the chartists have their stops" etc etc. As a result it pushes me to learn more and more stuffs. It's cumbersome and time consuming, I just hope it worth...

For example I started with TA and charts ignoring the economic fundamentals then as like you I decided to play the longer term and ride the big swing, I progressively look into the macroeconomics moves and impacts, the way the markets interact with macroeconomc events. Now in my trading I look at macroeconomics to define the position and the longer trend, but still use my chart and TA knowledge for my execution : entries and
exits, I use maths for the sizing and the risk management in my system,etc...
Every single thing that will give me an edge counts because at the end, you just need a small edge to make it.

Sauros wrote:

almbayrak66 wrote:

Hi Sauros, unfortunately I have some economics background, this is causing some forecast expectations, " to high, too low, budget deficit, trade deficit, not sufficient QE...) a succesfull trader must not have any forecast, no forecast at all. Just follow the trend, stay on the table. To me poker players with no economic background are optimum choice for trading. Follow other's moves, watch bluffings. I study weeks for recognition of charts and chart patterns. Now I'm trying to forget all I know about charts maybe only daily charts for main trend. I never had a chance to try make a living with professional poker, for this reason it may not be appropriate to make a comparaison, but my feelings say professional poker playing is harder than professional trading. At least there is no trend there in any sense. No big guys to follow.

What is next? How about hollywood stars!

A few decades ago, the US tried to put an actor at the white house, not sure it worked that much... This said, I would be happy to put all my money in the Megan fox Capital Management fund

I'm not sure that you should "forget" anything you've learned I guess most of the time in pain (and probably with a cost...).
Every part of your knowledge resulting from your trading experience helps to define what will become finally your own trading style. I believe what will ultimately leads you to constant profits is precisely that combination of skills and techniques. Personally I like to mix several approaches: technical analysis, charts, fundamentals, maths, market sentiment reading and I try to "trade the traders" rather than the price: in a given situation I like to think "here the technician crowd could go in", "here the chartists have their stops" etc etc. As a result it pushes me to learn more and more stuffs. It's cumbersome and time consuming, I just hope it worth...

For example I started with TA and charts ignoring the economic fundamentals then as like you I decided to play the longer term and ride the big swing, I progressively look into the macroeconomics moves and impacts, the way the markets interact with macroeconomc events. Now in my trading I look at macroeconomics to define the position and the longer trend, but still use my chart and TA knowledge for my execution : entries and
exits, I use maths for the sizing and the risk management in my system,etc...
Every single thing that will give me an edge counts because at the end, you just need a small edge to make it.

Hi Sauros, this post is very explanatory, thank you.

sauros wrote:

Every single thing that will give me an edge counts because at the end, you just need a small edge to make it.

now thats a win statement