Managing Risk in Poker

Professional traders who work in the city have numerous objectives during the course of any one working day. But the overwhelming priority for a professional trader is to “manage risk”. How is this possible you ask when they are operating in a risk business? Well we are not talking about eliminating risk here because if you try to do that then you are going to hinder your profit making potential.

All risk markets basically operate in the same way in so much as the greater the risk, the greater the potential return. You must accept risk if you desire to make a substantial amount of money. But there is a difference between accepting risk and managing risk. Anyone who accepts the fluctuations of poker without giving it a second thought has already come to terms with risk.

But if you do not manage that risk not just in poker but in any financial risk orientated market then you are heading for disaster. Let me explain, let us take a look at one fine fellow, we will call him Joe.

Joe has worked very hard on his poker game and is actually a very good player. He easily knows more than the other players at his level. He decided to put $2000 of his savings into his poker venture and decided to play Texas Hold’em NL100 which is $0.50-$1.00 blinds. This size game has a buy-in of $100 so he has a total of twenty buy-ins.

Now in most cases this should be enough as twenty buy-ins is a substantial bankroll to have at this level but it is a long way short of being guaranteed of not getting wiped out because of some horrid run. I have encountered numerous players who have experienced twenty buy-in downswings and these were excellent players as well.

The normal day to day variance within the game (or the noise) will test your bankroll even when you are playing strong poker. But Joe is in a decent situation with twenty buy-ins so not too much to worry about at this stage. Joe manages to win $500 pretty easily after just 1000 hands of play and decides that NL200 is really where he ought to be playing.

So with $2500 he now decides to try and increase his profits by playing $1-$2 but these games now have a buy-in of $200 so he now only has 12 ½ buy-ins and not the 25 that he would have had if he had stayed at his previous level. Joe then has a totally normal series of outdraws which cost him $1000 which is only five buy-ins at this new level.

This spooks him into dropping down to his previous level but now he is playing at his previous level with only 15 buy-ins which is still vulnerable.

Joe’s bad run continues with another five buy-in drop at NL100 and he loses another $500. Suddenly after feeling euphoric at having gone from $2000 to $2500 very quickly, he is now depressed at having dropped $1500 and seeing his original bankroll halve from $2000 to $1000.

Suddenly something snaps in Joe and he wants to get that money back quickly. So he leapfrogs NL200 and sits down in a NL400 game with blinds of $2-$4, now he has only 2 ½ buy-ins. Whilst it is true that he has increased his chances of getting his money back quickly, he is now just a couple of beats away from going bust.

Joe gets kings beaten by aces and a straight gets outdrawn by someone’s set on the river for a full-house and suddenly Joe has no money left. His problem was that he didn’t manage his risk…..he was already starting with a borderline 20 buy-ins and he should have consolidated his position in a game that he was beating at that time. If you fail to manage risk then that risk will come back to haunt you at some stage.

by Carl “The Dean” Sampson

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