Monday, July 14, 2008

Game Theory Alive and Well! --IFCN Wk 32 -Mon- Equity: $717.01

There is some historic news involving game theory.  Game theory is a field which has shown great potential in the markets and definitely impacts trading as a profession.

Before we look at it, I'll review our current positions.

Early this morning, we exited the long Eur/Usd OneNightStand trade from Friday – in @ 1.5911, out at 1.5898. A loss of 13 pips ($ .95).

We entered all five FirstStrike trades today. Had quick losses in the Usd/Chf and Eur/Usd. So far the Gbp/Usd has proven to be the strongest trade of the week.

The following are this week's FirstStrike entries:
  • Eur/Usd: Sold @ 1.5848, stopped out at 1.5908 for a 60 pip loss.
  • Gbp/Jpy: Long @ 212.11, stop 211.21. Trade in progress.
  • Gbp/Usd: Long @ 1.9906, stop 1.9846. Trade in progress.
  • Usd/Chf: Long @ 1.0240, stopped out at 1.0180 for a 60 pip loss.
  • Usd/Jpy: Sold @ 105.95, stop 106.55. Trade in progress.
Note: Any FirstStrike trade not stopped out before Friday gets exited on Friday just before 15:00 CST.

Current equity is $717.01.


-----News release courtesy of

On July 3-6. 2008, a lineup of serious professionals, who make a living from playing poker, went
head to head with the latest version of Polaris, a poker AI (artificial intelligence) designed by the University of Alberta’s Computer Poker Research Group.

The match was held at the 2008 Gaming Life Expo, down the street from this year’s World Series of Poker in Las Vegas.

There were 6 matches of one on one limit hold’em. Each match consisted of two humans playing against the computer in separate locations, and the contest used a “duplicate” format wherein the set of cards dealt during the match would be the same at both teammates’ tables. At one location a human would play one side of the cards, and in the other location his teammate would play the opposite side of the cards.

After 500 hands the winner was determined by whether the humans or the AI had the highest net score. This duplicate format greatly helped to reduce the short-term element of luck and make the matches a much truer contest of skill.

After the first five matches the tournament was tied at 2 wins for the humans, 2 for Polaris, and 1 tie (according to the rules of the tournament a win of less than 25 “small bets,” the betting unit on the early streets in limit hold’em, would be declared as a tie). That meant that the last match of the tournament would also be the tie-breaker, and to add to the dramatic element Polaris’ last set of opponents was arguably the strongest.

Polaris won the match in convincing fashion, winning both sides of the duplicate match for a net win of 90 small bets. This gave Polaris a final record of 3-2-1, and provided the CPRG with their first win over human opponents. The CPRG had created a similar event last year against professionals Phil Laak and Ali Eslami where Polaris finished with a final record of 1 win, 2 losses, and 1 tie.

----- End of News Release-----

This was the first time in an officiated tournament that a poker computer bested the human players.

This is an extremely significant development. The ramifications to other skilled professions, such as trading is staggering.

This validates the principle that game theory can be programmed sufficiently to be used as a mathematical edge in games that previously only could be dominated by highly experienced players who mentally weighted the importance of known variables: mutually agreed game information, stakes and bet sizes.

Does this mean that we have to worry about game-theory-programmed robot traders in our future?

Yes and no.  Completely depending on how you respond to these developments.

We've already been trading with and against AIs for a number of years. Remember Long-Term Capital Management?

Poker has some strong similarities to trading, but also important differences. Instead of 5 or 6 players, the markets have millions of players. Even though some of these players sift themselves into groups that can be somewhat predictable, they're mass irrational responses make it difficult for robots to handle their manias, naked fear and overwhelming greed.

Being a human trader is a bonus in the markets. You have the ability to use any computer advantages proven useful AND your brain.

Those who trust in hope, luck and “I think this should work...,” will be the donors of your future wealth.

Have a good evening.

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: and tell me to which address you would like it sent. Please do not use AOL, Yahoo or Hotmail addresses. Nothing personal, but they've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!

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