Winning is a habit. Unfortunately, so is losing.

- Vince Lombardi

A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.

- Ed Seykota

It’s an intimidating stat, and no doubt you’ve heard it: Roughly speaking, 90% of traders lose over time.

The same applies to poker players. A solid 90% of them wind up losing money in the long run too, with a small percentage on top of that breaking even.

That leaves all the spoils to be divided by two groups: The small constellation of lifetime winners at the top of the pyramid… and the house, which collects the vigorish (slippage and commissions in trading, rake and tokes in the card room).

This “90% losers” stat is endlessly cited by those with a sour grapes attitude. You know, the grumpy relative or friend of a friend etcetera who swears that such-and-such is a foolish and irresponsible pursuit.

Amusingly, you don’t hear much about the fact that the failure rate in trading and poker is right in line with the failure rate for small businesses. Just based on the general percentages, you are as likely to bust out opening a sandwich shop or trying to start an accounting practice or what have you.

This makes sense because, treated correctly, trading and poker ARE the functional equivalent of small, nimble, low-overhead businesses, in which profits are your product, losses are your COGS (cost of goods sold), and capital is your inventory. So it isn’t surprising to hear the failure rate is very similar.

(Of course, your grumpy relative might be a lot more supportive were you to go into a ‘respectable’ small business, having gotten a major loan from a ‘respectable’ bank, paid up for a ‘respectable’ franchise license, committed to a ‘respectable’ chunk of storefront, and so on. But I digress.)

The point of this piece is to shed a little light on the “90% failure rate” statistic, and to point out why it isn’t actually as intimidating as you think.

To understand why you shouldn’t be intimidated by the 90% stat — provided you are willing to do the right things — we’re going to use the typical poker player’s experience as an example, and then expand from there into trading.

First off, it is an article of contrarian logic that, if you want different results from the crowd, you have to start by behaving differently from the crowd.

You can’t do what the average punter does, and yet somehow expect to get a better-than-average result!

So what do average poker players do that causes them to lose so consistently? Let’s take a look.

The following are estimates from one sharp observer (yours truly), based on thousands of hours of No Limit hold ‘em experience in professionally run Nevada card rooms.

• More than half (50%) of all poker players drink at the table. That is to say, they readily avail themselves of the free alcohol provided by cute cocktail waitresses.

• More than two-thirds (67%) of all poker players see poker as a hobby. It’s a fun and relaxing pursuit, i.e. not something to be serious about. The fun part wouldn’t be bad, per se, if it weren’t so readily used as an excuse to play bad. (It’s more fun to play bad, as anyone who has ever sucked out with a six-outer in a huge pot will tell you.)

• More than three-quarters (75%) of all poker players have a sporadic commitment level at best. That is to say, they do not play regularly and consistently. They play on vacation, or when they have a couple extra bucks, or when the mood strikes them. There is no baseline level of commitment to the game.

• More than four-fifths (80%) of all poker players do not track their play. Most poker players only have a very vague idea of how they are doing. This is probably intentional, as it provides a subconscious buffer against the money they know they are losing. Very few poker players — 20% at most — are diligent about tracking every chip with an eye for studying long-term results.

• More than six out of seven (85%) of all poker players are undercapitalized relative to the stakes they play. Poker, like trading, is a game of fat tails. This is especially true of No Limit hold ‘em, a game in which the underlying volatility can be huge. Even a “small” $1-$2 No Limit game, typically the smallest stakes available in a professional card room, can have monster swings. Playing undercapitalized is like taking a knife to a gunfight.

• More than six out of seven (85%) of all poker players fail to understand position sizing. I know what you’re thinking — “Wait a minute, isn’t position sizing a trading term?” Yep. But it’s a poker term too. Or at least it should be. The ability to size one’s bets properly — not too big, not too small, and situationally appropriate on a case-by-case basis — is a HUGE factor in long run profitability. Believe it or not, the vast majority of poker players are clueless about this — they may pay lip service to the concept, yet they don’t understand what they are missing.

• More than nine out of ten poker players (90%) do not conduct in-depth analysis of every session and every hand. The way to learn and improve is to aggressively analyze mistakes, constantly scouring for areas of potential improvement. The best players constantly probe for weak spots in their game, questioning even their successful plays in a constant quest to improve. In practice, this is done by way of extensive verbal notes — often taken via digital recorder — either immediately after the session or at various breakpoints within the session itself. The best players then spend a good chunk of time outside the poker room analyzing and dissecting these notes, in order to more fully integrate theory with experience.

If you play a lot of poker, you may quibble with some of those percentage estimates. But I would argue, based on deep experience, that they are broadly and conceptually accurate.

So, based on the above, let’s revisit the “90% lose” stat again.

Given how the majority of players approach the game, is it any wonder that 90% lose? The vast majority never really put themselves in the game in the first place!

(The same is true in small business by the way. It is mind-boggling how many start-up businesses run aground on simple yet avoidable mistakes, or never had a chance in the first place due to “leaks” in the entrepreneur’s game.)

So: From a poker perspective, if you can do all the following, then guess what — you are ALREADY putting yourself in excellent position to achieve a top tenth percentile result:

• Treating it like a job (always staying energized and focused)
• Putting P&L first (making sure your fun comes from profitable decision making)
• Emphasizing process over outcome (not being misled by fluctuations)
• Tracking every chip in play (measuring to improve)
• Analyzing key decisions and key hands (every session a learning experience)
• Committing to consistent play (regular and committed engagement)
• Committing to proper capitalization (not overplaying / underfunding your bankroll)
• Committing to the journey (understanding what it takes to truly improve over time)

Now,  let’s take this over to trading via a series of simple questions:

~ How many would be traders are sloppy, inconsistent, or otherwise lax in their trade selection and execution process?

~ How many traders  focus more on “being right” than making money — putting P&L in service to ego rather than the other way round?

~ How many traders and investors are, quite frankly, half-assed and sporadic when it comes to doing their homework?

~ How many traders truly scrutinize and analyze their key decisions, on a rigorous habitual basis, with an eye for plugging “leaks” and sussing out incremental improvements?

~ How many traders are both brutally honest and metronomically consistent in terms of tracking and evaluating performance?

~ How many traders truly understand the impact of volatility, the necessity of adequate capitalization, and the vital importance of position sizing?

~ How many traders truly understand the “commitment of the journey,” and do not shy away from the hard transformative learning experiences such a journey naturally entails?

Once again: If you can honestly answer all the above questions — and honestly tackle deficiencies wherever they arise — then you are already well on your way!

Simply by recognizing (and not shying away from) the “table stakes” for true trading and poker success, you can bypass the bulk of your aspiring peers. Your odds, given this extraordinary level of commitment, can now be placed somewhere closer to 1:1, or 50/50, versus the original 9 to 1 against.

Again remember, most aspirants never actually get to the point of 1) making a comprehensive commitment and 2) actually following through!

It’s as simple as recognizing that, of all the people who “try,” only a few really try, in terms of giving themselves the best chance of success from the very start. And if you can make yourself one of those few, your odds are much, much better than the generally cited numbers.

There is no golden ticket, of course. As Morpheus told Neo in the Matrix, there is a difference between Knowing the Path and Walking the Path.

So, can you walk the walk? Well, that’s for the world to find out, isn’t it?

You will always need intangibles like talent, motivation, training, and, yes, a dollop of luck is always nice too. Though we prefer the Tony Robbins definition of luck — Labor Under Correct Knowledge — and Louis Pasteur’s observation that “chance favors the prepared mind.”

JS

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