Sunday, January 1, 2017

5 ways OTC trading is just like Poker

Welcome to Chedsblog!   
-Helping new traders avoid my old mistakes-

OTCBB Pennystock trading article topics include:
Reading financials and filings
Market makers 
L2 and chart analysis
Understanding the competition
Using social media to trade
Price and volume study
Bankroll management
Game theory
Sub .01 low float setups
Interviews with influence makers
    OTCBB Penny Stocks Trading Market Makers L2 Charts Technical Analysis Financials Learning Discipline Networking Planning Bankroll Management Taking Profit Paper Trading Options Nasdaq NYSE Small Cap Stock Picks Alerts Bashers Growth Pennystock Sub Penny List Stop Loss Top Hot




    5 ways OTC trading is just like Poker


    Introduction


    My friends, I wrote this article as a way to add some context to this mad game we play called OTC trading. If you are a new OTC trader but are an experienced Poker player, then you should have a natural advantage.

    I started playing poker towards the end of 2011, as back then a good friend of mine was playing 2/4 limit(online) and making some serious money. Now, since he and I both had similar hobbies and were always competitive, I figured if he could making money why couldn't I? I started out playing $5 entry single table Sit-and-go tournaments and low level cash games, spending all my free time getting that basic experience.

    In my first year I lost about $500, but after that I never looked back. The key to getting over that hump was spotting my repeat mistakes, and adjusting my game. Another big part of my ability to turn from a losing to profitable player was finding the exact sub-game I wanted to play. For trading, its those sub .01 tickers, for poker it was single table sit and go tournaments. I started at $5, moving up to $10 and occasionally higher. The key was not to play higher and higher level tourneys, it was to grind out those small wins I could grind out and really work on improving my method. I had always been a methodical thinker and used to learning by trial and error, and after playing hundreds of these tournaments I turned out to be pretty good.

    Over the years I was able to make some nice spending money playing poker, and expanded from single table tournaments to multi table tournaments, and towards the end branched out some more to become a pretty darn good Pot Limit Omaha high player. After about 100,000 hands of PLO I was a pretty good player. Anything worth learning takes a lot of practice, something to keep in mind.



    To get a sense of my poker credentials (not a pro by any means, just a grinder) below is my poker poker profile for a few years of playing mutli-table tournaments. 






    5 ways trading is just like Poker

    #1 Minutes to learn, lifetime to master

    One of the most common phrases you will hear about poker is "It takes 5 minutes to learn, and a lifetime to master" 

    Its very easy to get over confident after winning a few pots, but just wait until you misplay and find yourself on the wrong side of a big hand. You need to have many years and hundreds of thousands of hands of experience logged to allow your analysis and intuition to guide you in the right direction.

    As I said in the intro, learning how to play Pot-Limit Omaha Hi, it took over 100,000 hands(online, 6 tables at a time) before I started get a good feel for the game.
    https://en.wikipedia.org/wiki/Omaha_hold_'em







    Basketball is also similar to poker in this way -- I am right now working on my jump shot and I think I will need to shoot at least another 100,000 shots before I will be confident with my jumper. Practice makes perfect.


    #2 Hand Selection

    For poker, I found that the style that fits me the best is called "tight aggressive" or TAG.
    https://www.888poker.com/magazine/strategy/tag-poker-strategy/

    This is similar to my approach with OTC. I believe it is best to wait, wait and wait some more until you find a good setup and then play it heavy, or at least play it with focus and have some cash behind it.



    Poker just like trading requires a lot of discipline in regards to play selection. Every time you decide to enter a play and risk your money, your capital, your bankroll you should have a good reason why, and being bored is not one of those reasons.

    http://www.pokerology.com/lessons/starting-hand-selection/
    https://www.pokerschoolonline.com/articles/Beginning-Poker-Patience-Discipline

    Your target entry by nature should be a conservative one, such that if you are able to fill on the bid near the bottom of a channel there is less risk to the upside. Given that cash is king and liquidity is the master attribute to control your profitability, a conservative entry point should be your foundation.





    This is 100% true. I have spent many days at live poker games either casino or home and had hour long stretches with nothing to play with. There is an argument that in poker you do not always need your hand, for example you can use the size of your stack relative to your opponent as well as the strength of position, so you may not need a hand. In OTC an argument you could make along these lines is that given enough liquidity you could use prop bids and multiple brokers and run a ticker up.

    However -- For the other 99% of us we rely on patience and wait for a good spot. Trading too many tickers because you are bored is a quick way to end up with no liquidity and be stuck bag holding.





    This is super important, especially as we head towards the slower seasons of the OTC (May-Sep). Given that money flow can be weak the last thing you want to do is get caught up in an ill-liquid ticker I will point out that many thought December would be a slow month this year was actually a great month so you never know if it will be slow or not. .



    This is very true that trading too much or "over-trading" will eat into your profits. If you are bored and go out of your way to play something, then you are exposing yourself to unnecessary risk. 

    Do Investors Trade Too Much?

     -  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=94143

    Over Trading – Why Trading Too Much Can be Bad for Your Wealth 

    http://forexop.com/over-trading-bad-for-wealth/



    #3 What % of players lose money trading OTC?   90%


    Its very true that most people who play poker lose money, and the same can be said for trading OTC. Studies have shown that only roughly 10% of all players are profitable.

    So, keeping that in mind, you should not feel frustrated. It took years to become profitable, but perhaps it will take you less time. That's part of the reason I made my blog, to help you guys learn faster and speed up that learning curve!

    Just How Much Do Individual Investors Lose by Trading? -
    https://faculty.haas.berkeley.edu/odean/Papers%20current%20versions/JustHowMuchDoIndividualInvestorsLose_RFS_2009.pdf








    We have all heard this before many times, "the odds are in favor of the house" This usually refers to a game like blackjack, where you are playing against a dealer and even with "perfect" strategy you have less than a 50% chance of winning.

    http://vegasclick.com/gambling/houseedge

    In poker it is a little different, the odds are not in favor of the house, the odds are in favor of the more skilled player (over the long run, short run is where luck is in charge).  With the OTC this is a little bit of a mixed issue and I suppose I can make an argument on both sides.

    One could easily argue that since the MMs can manipulate the tape, they have L3 and can see all the orders they are in complete control, so the house has an advantage. I could also argue that since you are in complete control of your entry and exit(for the most part) and you control your bet sizing as well as having the ability to read financials and understand trading momentum, do technical analysis and study L2, the odds are actually in favor of the skilled trader.


    #4 Bankroll management  5% per play, 5% per tourney


    Proper bankroll management is one of the most important skills in any traders repertoire. 

    The same is true for playing poker:





    If you can skillfully manage your bankroll it will give you a great edge in the long term, and help you guard against big losses.

    One of the most costly mistakes you can make (assuming you are not trading on a margin account) is to buy with unsettled funds. When you buy an OTC ticker, you want to be able to sell it immediately if need be: When your target price hits or if something goes wrong(Like an RS annoucement) you need to be able to cut loose very quickly. I have made the mistake many many times of buying a ticker and not being able to sell because I was using unsettled funds, and watched that ticker tank over the next few days. I have watched many of my gains turn into losses this way, and as a result I will only buy on settled cash. Stay disciplined.



    #5) EV, Pot Odds and liquidity


    What is EV? (Expected Value)



    EV is an interesting concept to quantify. One good way to think about it is a decision tree. Given one of x number of possible decisions you can make and all the future decision trees that will lead you to, what is the value of each of those initial actions such that they provide you a greater value of future potential decisions. Or, just think about it like basketball, the +/- stat. If a player in the course of their time on the court gets more rebounds and baskets than fouls and turnovers, they have a higher +- number. This is a value quotient, and in OTC as in Poker, you can apply that value to each potential action you make. 






    I love this tweet, and it was an inspired one when I wrote it. This very true, that given the filing status of a ticker there is a base intrinsic value, some type of EV.

    A non filing ticker has a lower EV than an OTC QB fully reporting and audited ticker. The latter will have up to date finances, you can read the note schedule and better navigate the dilution plan your trade. The first one is a total crap-shoot.


    For OTC  I have always been a strong believer that there is always another play out there. That whole "FOMO" or fear of missing out is nothing more than an emotional weakness that prevents you from thinking strategically.

    With Poker, its very much the same thing. I like think about poker this way: The more flops I can see - the more information I will have. Given a tough situation in poker, there can be lot of value or EV in folding your hand because you can save your chips, and those chips will allow you to see more flops = more information. The theory here is that if you can get more information, you will be able to evaluate and find a spot with better pot and implied odds,,where there is more mathematical upside and  +EV.

    As beard says, there is always another hand coming, and there is always another ticker.





    Wow, what a great point, reading your opponent. How important is that in poker? If you are in a tough hand with someone and you have a good "read" on them then that can help advise you on the right course of action. In poker you can argue that watching your opponent from hand 1 is +EV because in theory by hand 100 you should have "a read" on your opponents.

    How does this apply to OTC? As a new trader trying to figure out whats real and whats BS, it can be an absolute nightmare on twitter knowing who to trust. And IHUB?(or other message boards) Forget about it! Everyone is feeding you a different line of BS and most of the people actually have no idea what they are talking about. So, this is how knowing your opponent becomes very important. If you start to study from day 1 the tickers people are tweeting, and then follow them for a few weeks you are able to get a sense of who is telling you the truth and who is selling you "bad milk". I can say with confidence, my knowledge of the traders on twitter and IHUB gives me a huge advantage, and this knowledge takes time to learn but is worth the effort.

    If you can understand how each of the large momo players, the gurus and furus and pretenders, how they operate then you can understand the ebb and flow of the pump, the dump, the silent loaders and the true low floaters.





    In my mind for OTC, one very applicable way is with what tickers you chose to enter. A ticker with a 10B AS has a lower EV than a ticker with a 1B AS, all other factors being equal. Or, a ticker with strong liquidity has a higher EV than one with weak liquidity.

    You can also think about the price range of a ticker, but this is a little bit more subjective. For money those .0030x tickers give you some nice room to bail if the trade goes badly, but .000x tickers leave you little room to maneuver.






    CONCLUSION
    I hope you guys have enjoyed this article as I have enjoyed writing it. I hope that by using these analogies from poker it will help you understand these OTC concepts shorten that learning curve. Best of luck and maybe ill see you at the poker table sometime....

    -Cheds




    Welcome to Chedsblog!   
    -Helping new traders avoid my old mistakes-

    OTCBB Pennystock trading article topics include:

    Reading financials and filings
    Market makers 
    L2 and chart analysis
    Understanding the competition
    Using social media to trade
    Price and volume study
    Bankroll management
    Game theory
    Sub .01 low float setups
    Interviews with influence makers

      OTCBB Penny Stocks Trading Market Makers L2 Charts Technical Analysis Financials Learning Discipline Networking Planning Bankroll Management Taking Profit Paper Trading Options Nasdaq NYSE Small Cap Stock Picks Alerts Bashers Growth Pennystock Sub Penny List Stop Loss Top Hot