Putting Maker to the Test

November 28, 2012

Error, group does not exist! Check your syntax! (ID: 29)Meet us in Atlantic City on December 6th – 10th! Read on for details…

We recently put Maker to the tournament test, and it passed. In the last Mercenary News installment, we discussed the creation of a poker cash game methodology (Maker Taker, or “Maker” for short) and the implications of such — namely, the excellent opportunity embedded in large-scale tournaments and Vegas cash games.

Though the methodology was developed for cash games, the hypothesis was it could also adapt well to tournaments (with a handful of modifications).

That hypothesis was swiftly proven correct… a few weeks back, yours truly (Jack) entered a WSOP circuit event with 650+ entrants.

The result: No final table, but a profitable cash. On a fairly weak run of cards, we carved our way through nearly 600 opponents over two days worth of play.

Poker success is a combination of skill and luck. We refer to the luck factor as “N.” That luck factor, or “N,” is what makes poker so profitable. Not because the skilled player needs luck, but because his opponents do. As others have observed, were poker a 100% skill endeavor , like chess, bad players would not play, and mediocre to poor players would not falsely believe themselves to be good. The naked skills gap, and the inability to ever win, would cause the “fish” to give up quickly.

But “N” keeps the fish coming back for more… and the average player’s entire conception of poker revolves around “getting lucky.” Never realizing, of course, that over a statistically meaningful run of hands, N washes away and only the skill (or lack thereof) is left. (Or perhaps they realize, deep down, but just don’t care… if everybody gets what they want, as Ed Seykota suggests, what all too many players “want” is entertainment rather than profit.)

We judged Maker’s tournament debut a success not because of the modest run — making a final table would have been better — but because it was achieved with such relatively weak N. Going deep on lousy cards is a much more meaningful accomplishment than flopping sets and turning straights over and over (or, as the grinders like to say, “having a horsehoe up your a**”).

In any given tournament, one can think of results as determined by “skill + N.” This means a terrible player — one whose skill component is negative (worse than average) — can still win if his N is off the charts. At the same time, an excellent player, with dominant skill, still needs a turbo boost of N to win. The better you are, the less N you need — and when you actually DO get the N nitro juice, it’s godzilla time.

Error, group does not exist! Check your syntax! (ID: 22)Another factor in our favor: Making it through a field of 2,000 players is no tougher than making it through two hundred… In both cases, the winning player survives through a combination of calculated aggression (picking spots) and risk control. At the point in the tournament where blinds and antes get crazy, opponents start dropping like flies. With a larger field — say, 2,000 entrants instead of 200 — the dropoff rate is arithmetically compounded. At that point, another 30 to 40 players go bust every 10 minutes instead of, say, just three or four, increasing the relative value of survival (chip preservation and accumulation skills).

Furthermore, the Maker methodology is designed to fare more favorably against skilled opponents… which in turn favors more expensive buy-ins, where the ratio of skilled-to-unskilled is higher. This may sound counter-intuitive, but can be explained by an old Bruce Lee observation.

Bruce Lee once commented (paraphrase) he actually has an easier time fighting trained opponents, because he is better able to fluidly anticipate what the trained opponent will do. With the untrained opponent, you can never be sure a wild punch or elbow fling won’t come out of nowhere. The randomly nonsensical move, because it is random, contains within itself the capacity for surprise.

The untrained novice’s utter lack of skill, in a way, is the one advantage the novice has — by doing something exceptionally dumb (from a vulnerability standpoint), the novice may well catch their professional opponent off guard.

On a related note, the semi-skilled opponent is more likely to respond in predictably exploitable ways — when confronted with a position raise on a dangerous flop, for example — and thus, the gap between highly skilled and moderately skilled can actually be larger (easier to exploit) than the gap between highly skilled and novice. The novice profile is far more binary with a 95/5 split: A 95% chance of blowing himself up, but a 5% chance of putting a crazy run together if sufficient N rewards a gross disregard for risk control. (This is why, in poker and in life, one routinely comes across awful players with large stacks — which they rarely manage to keep…)

In markets, the “moderately skilled opponent” is analagous to the short-term trader run ragged by High Frequency Trading algorithms. If one is in the habit of setting stops too close, and relying too heavily or indiscriminately on conventional chart patterns, the algos can — and will — flip that partial knowledge around and beat the trader over the head with it.

What does this have to do with trading? More than many will ever know… poker and trading share DNA in the following ways:

  • both are a combination of art and science
  • both draw heavily on psychology, math, and observational skill
  • both revolve around calculated aggression and risk control
  • both require the intertwining of theory and practice
  • both require the juxtaposition of seemingly contrary traits:
    • patience vs ability to act quickly
    • calculated aggression vs risk control
    • intuitive ‘feel’ vs mathematical grounding
    • passion and drive vs emotional control

We find it amusing that, as with poker, so many who lament the “impossible task” of profitable trading don’t understand how the game is played… or where edges come from… or how those edges are cultivated, sustained and maintained…

Error, group does not exist! Check your syntax! (ID: 11)The day this was written (November 28th), the market’s whipsaw tendencies were in particularly fine form. After an opening bell downside gap, and seeming threat of intraday collapse, risk assets violently reversed higher into the close, no doubt causing many traders to bang their heads on the desk in the manner of the Sesame Street piano player.

But this is not evidence “markets have become impossible” or anything of the kind (although those who instinctively want to see traders fail will be happy to say as much).

It is, instead, a reminder that 1) trading can be hard at times and 2) trading environments can be exceptionally crappy at times — neither of which should be much of a surprise… or an impediment to long-term opportunity. Markets have a distinct game theory component in that, the fewer the total number of survivors after a “wash and rinse” period, the greater the future opportunity that comes available (with comparatively few left to exploit it).

To put it another way: If the money always came flying in through the window, too many profit seekers would crowd the window. Pain facilitates gain by blocking the pathways of the insufficiently persistent, motivated and seasoned.

For the above reasons, we are very excited about potential trading opportunities in 2013 — perhaps the first year in quite some time where we could get real breathing space from the seemingly endless succession of top down political shocks. Central bank announcements… major elections… debt negotiations… congressional wrangling… madre de dios! Soon enough the decks could clear for some real and powerful trends…

Our next “Maker” opportunity: Atlantic City, December 6th through 10th! We will be doing our part for the hurricane-ravaged New Jersey economy by hitting Harrah’s A.C. for the WSOP circuit “main event” kicking off Saturday, December 8th. We’ll also be at the cash game tables a day or two beforehand — as long as Harrahs has a solid internet connection — and invite all Mercenary community members in the NYC / Jersey area to come hang out.

Send an email to jack@ or mike@ if you’d like to have drinks…

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