The Crazy Volatility of Cryptocurrency. Lessons from Poker. Tilt

Source:DepositPhotos

If you have done any crypto currency trading over the last couple of years, you don’t need to be told the volatility is high. Just how high is it? Let’s look at some comparisons.

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This graph does not show the bitcoin price, rather the volatility index. It’s not necessary to understand exactly how this is calculated, but if you would like to know follow this link. Now look at the calm, serene, almost flat yellow line in the graph. That’s the volatility index for the US dollar/Euro.

For any other commonly traded non-crypto currency, it’s a similar story to the US dollar/Euro. You don’t go to sleep with your Australian dollars trading at 1.3 to the US dollar only to wake up to find they have dropped 20% in value and still falling. It would make the morning news shows a little livelier than usual however.

Crypto currency volatility is really on a whole other level. It’s like if Roger Federer decided to enter the local suburban tennis tournament. The experience for the investors/players would be completely different. Is there anywhere else that we can find a similar level of volatility two crypto trading? Actually yes. Poker. Specifically Pot Limit Omaha- the poker variant known for having the most soul crushing never-ending downswings, and also runs of luck absurd enough to pull drooling mouth breathing fish up to the high-stakes. For a while anyway.

Never Surrender

This graph above quite strongly resembles the price graph for bitcoin in February 2018. Instead it shows the heroic journey of a true poker star who, undeterred by a rather harsh downswing from $35,000 up to over $200,000 down, fought back to positive territory. Truly a man of character.

Coping with this level of volatility is something almost everybody struggles with. If you sometimes feel like following your crypto trades is an emotional rollercoaster you are certainly not alone. I have played quite a lot of the more well-known No Limit Holden version of poker with reasonable success, but online pot limit Omaha used to send me into fits of rage where I would throw my mouse across the room or enter short lived fits of depression. It wasn’t healthy for me, so I stopped. Crypto trading can be rather profitable though, so let’s look at some advice from the poker world at coping with huge up-and-down swings in profit.

1. Take a Break

Take a break. The oldest advice in the poker players book. When you have lost a lot of money and/or had run of bad luck it is likely that you are feeling emotional. In the poker world this is called being on ‘tilt.’ Wikipedia defines poker tilt as:

a state of mental or emotional confusion or frustration in which a player adopts a less than optimal strategy.

Success at poker or at trading comes as a result of making objective, well thought out decisions. If you are feeling angry or frustrated this is difficult to achieve. Instead, you are likely to indulge in behaviour such as committing larger than normal amounts of money to try and ‘get your money back’ or trading in a timid way to try and avoid further losses.

In a super-high variance activity such as crypto trading or Pot Limit Omaha, ability to cope with tilt it is hugely important. Some poker professionals have even gone so far as to say that in PLO the way you cope with the swings is an even more important distinguishing factor than your skill at the game. Take a look at this graph:

A steady climb to over a thousand in profit, followed by one or two sessions of massive losses to dip below zero. There is some evidence of a tilt problem here.

2.Drop-down in Stakes.

When you are on a run of losses you start to concentrate too much on the results of the next trade/hand, instead of concentrating on making the right decisions. If you start to commit much smaller amounts of money, you feel a lot less pressure. When you are committing an amount of money where you can easily absorb losses, it makes it much easier to stop thinking about the result.

Source:DepositPhotos

3. Take the Opportunity to Work on your Game.

When you are on a good run of results it makes sense to keep going. When variance starts going against you it is a good opportunity to slow things down and analyze what you’re doing. Have a look at some statistics that show the situations where you made money or lost money. Review your decisions step-by-step and see if there’s anything you could have done better. The silver lining on a terrible run of luck is often that you come out of it is a much better player/trader.

Good luck with the trading!