When we speak of variance in poker, we are referring to the range of fluctuations that can occur in your bankroll from playing a certain game or style. Some games or styles have a higher variance than others, meaning you can go up or down more quickly. We're going to have a look at this phenomenon in a little more detail in this lesson, to see what we may need to take into consideration when looking to increase our bankroll more efficiently.
We'll be speaking of variance as the potential for swings in your bankroll. While variance invloves both up and down swings, it will be the down swings which we're concerned about, since it is to our advantage to limit these in order to achieve our bankroll goals.
Let's go back to the earlier lesson on bankroll. An example of a measure designed to accomodate variance was the 300 big bet system. This system is premised upon the fact that, given that you are a profitable player overall, it is very unlikely that you will experience a downturn of 300 big bets or more. This addresses the "risk of ruin," which indeed must be accounted for, since you obviously don't want to lose all of your bankroll. However, as we said, this isn't the most efficient way to approach building your bankroll, and is too defensive. Our scheme allows profitable players to increase their bankroll safely at a much higher rate.
While doing this, variance must always be kept in mind. While we may need to drop down to lower levels, we don't want to make a habit of this, since we'll have to work harder to achieve our goals here if we need to drop down too much. If we're playing at $2/$4, and we end up going down to $1/2 several times, we're going to be spinning our tires too much and it's going to take longer to get to $3/6 and beyond. Now, sometimes this is unavoidable, but we want to control our swings to limit the possibility of having to drop down like this too much.
So you can see that expected value isn't the only thing we need to be concerned about. Expected value is only going to help us to the degree it contributes to the larger goal of our bankroll growth, and we want to have the 2 working together in order to achieve the best results.
There are already several features built into our strategy which will help us limit variance. First of all, we're playing pretty tight, which will have us seeking the best situations to play our cards in. And we're avoiding marginal situations, where there may be a very small profit over time, but will add to our variance to the degree that it makes these situations harmful to us overall.
On the other side of the coin, we're looking to play loose games, and loose games tend to have a higher variance. The benefits outweigh the risks here though, and we still want to find as loose a game as we can, however we will have to keep variance in mind when we do so.
Our needs for variance control are going to vary though in regard to our circumstances. The first thing we need to look at is average profitability. If we are not profitable, for instance, then variance management will consist of limiting our decline from a faster one to a slower one. When starting out though, you may not be profitable right away, and not losing your money too quickly is going to be very important. This is one of the reasons why playing a little tighter starting out is preferable.
And, as you achieve profitability, variance becomes less and less of a concern as your profitability increases. It's still something we want to be aware of, at least until you get to the point where you're playing the highest game available, and your bankroll is large enough that fluctuations aren't a concern anymore.
Another situation where this is going to be a big concern is when you're fairly new and don't have a lot of bets to cover yourself. Say you've only got $50 or so to deposit. That's fine, and if you lose it, you can probably come up with some more stake money a little down the road. Now, say you don't want to start out playing micro limits, which isn't always the best idea anyway. If you can replenish the bankroll in a short period of time, it would be preferable to play something a little more risky. So, say you've got $50 and you decide to play .50/1. This only gives you 50 big bets, so you've got to be careful. So variance is something you especially need to be careful with, since while you can replenish your bankroll, you'd prefer not to go broke if you can.
With all that said, let's look at the 2 main variants of variance management. This is the type of game, and the type of style you'll play. First, let's look at different game types and how variance is affected. We'll just deal with the main ones though.
The type of game with the highest potential for variance is multi-table tournaments. You can go several tournaments without geting paid off at all. The variance will go down as you get better at this, but even the best players very often don't finish in the money. If you're looking to control your variance, this doesn't mean you shouldn't play these, but only make the entry fee a very small part of your overall bankroll.
Next would be no limit cash games. You don't have to worry about getting paid only once in awhile, like multi-table tourneys, but you will go up and down quite a bit quicker than at limit. This can be managed by making sure you have several buy-ins at any one time, which we'll get into more in later lessons. However, starting out, it's better to stick to limit, where variance is going to be lower.
Next in line would be limit cash games. This is the best place to start out at, as it takes the least amount of skill among the possible games, the competition tends to be weak, and it's a lot harder to lose all your money than it is at no-limit.
The game with the least amount of variance is sit and go tournaments. You can lose your whole stack, and your losses are limited to your entry fee, but there's few players involved so your percentage of finishing in the money will be a lot higher than at a bigger tournament. These tournaments involve more skill though, and even more skill than the multi-table ones, so they usually aren't the best choice as your main game when first starting out. It's better to start out seeking to master your play at a full table, then get into mastering the various types of shorthanded play that this involves later on. This still can be a good practice tool though, but you need to limit your investment to only a small part of your bankroll.
Keep in mind though that these are suggestions mainly for people starting out, and you can adjust your exposure in many of these games to compensate for the variance differences as you get better and more confident in your game. And, in deciding which type of game to play, things like the differences in personal ability at certain types of games, as well as the quality of competition at one versus another, is going to factor into these decisions as well.
In terms of different styles and their affect on variance, we're looking to use our style to keep variance under control. While it's better to play tight than loose, it pays to play a little tighter again, since this will help us avoid the bigger swings that are much more common among looser players. The rationale here is: with the higher win rate that playing this way brings, it's going to make it a lot less likely that we'll have very many losses bunched together, and thus when the swings in luck turn against us, we'll still come out without taking much of a beating at all, yet we'll still be prepared to take advantage when it swings back in our favor.
Aside from playing tight, we will also benefit from playing fairly careful as well. We're not going to push dicey situations, where we may win but will lose a lot as well, and we're also going to take heed when the stakes are raised, making sure we have the type of hand that does well in these circumstances. And we're not going to push it when we have no real advantage. We're not playing scared or weak here, we're playing smart.
Of course, we will adjust our play to get even tighter and more careful if circumstances require it. After we've established our bankroll a little bit, this won't really be required so much, and we will soon get to the point where we can just focus on playing smart. In managing our variance properly though, this will allow our downswings to be less freqent and less severe in magnitide, which will allow us to rise up the ladder much more quickly.