Managing Your Bankroll

12Mar07

This weekend I spent some time playing poker at a local parlor and an underground tourney.  I’m not a pro by any means, but I manage to do well by using my trading methodologies and applying it to poker.  Not to mention, it feeds my addictions when markets are closed! 

Trading, like poker, teaches a few important lessons:

First, it teaches you to calculate your odds and knowing when to muck(fold) a hand or when to increase the stakes.   Basically, knowing how much to bet and when.  Second, and I believe most important, is managing your bankroll.  Similar to trading, professional poker players believe that you should never play with more then 10% of your bankroll.  This prevents you from losing everything and making sure you’re still in the game.  Every trader/player has a bad day, the goal is to make sure you’re around for the next.  It’s all about RISK MANAGEMENT.

Personally, I’m still learning these aspects of trading.  My issue is that I tend to overly trust my signals.  In the past, that’s how I lost my account.  I was betting the farm on a certain direction without any measure of “if I was wrong” scenarios.  Sure, that’s how you can win the lotto, but that’s not the way to make sure you survive in the long term.  As the most of  you know the markets are made to make you crazy.  As traders, we’re not always 100% right, and that’s why we must implement risk management techniques. 

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