Poker and Trading

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A poker player shouldn't play in games where his entire bankroll is at risk--sooner or later, he will go broke, no matter how skilled he is.

It's better for a player to grind away at lower stakes and slowly move up in higher games as his bankroll permits.

If a player goes on a losing streak and no longer has the bankroll to comfortably play at his current stakes, it’s probably best he move down in stakes until his assets appreciate enough to play higher again.

If one cannot afford to lose in the game, one should not be playing in that game.

This is the same exact risk management structure that goes into every valid trading system; as total assets shrink or grow, so does the dollar amount of risk per trade, but the risk as a percentage of total assets is more-or-less fixed.

For example, I’ll risk at most 2% per trade, but I’ll often trade less than 2% to adjust for portfolio correlation. If I have $100K in my account, I’ll max out at $2K risk per trade, if I have $10K worth of assets, I’ll max out at $200 risk per trade.

The more money your system creates, the bigger your initial bets should be. As your system loses, the bet sizes should also get smaller. It's not wise to chase losses with bigger bets at the hope of getting back to even. Using fixed risk % is how you capture compounding gains when assets grow and avoid going broke when asset shrink.

If risk management isn’t perfected, at best you’ll be building a house of cards.

In poker or trading markets, it's better to grind at lower stakes and slowly build (or rebuild) your foundation than to be in a revolving door of “boom and bust.”