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Understanding ROI and Variance

Understanding ROI and Variance

The online poker world can be a turbulent place to ply your trade. And while it's impossible to control the flow of action, you can get a better handle on the dynamics of the game by understanding two key concepts: Return on Investment (ROI) and variance.

Each of these mathematical concepts underpins how much money you win or lose over a given period of time. While some online poker players will measure their success in dollar amounts, the real pros look at their ROI.

Because they understand that the tide of luck will ebb and flow, pros prefer to focus on their win rate in percentage terms.

Essentially, there is a relationship between ROI and variance and the latter will always have an effect on the former. However, as much of an impact that variance has on a player's ROI, this measure of success is one you should focus on because over time it will give you a true reflection of your ability.

Unlike money, ROI isn't as widely affected by variance because it considers your complete body of results, rather than the current size of your bankroll.

To give you a better insight into ROI and variance, here's an outline of both online poker concepts.

What is ROI in Poker?

What is ROI in Poker?

When it comes to understanding ROI the first thing you need to understand is that it's related to online poker tournaments. Cash game players often focus on the bb/100 (big bets over 100) as the measure of their success, but MTT and SNG players look at their ROI.

Because of this, ROI can be simply defined as the average amount of money you're expected to make on per tournament.

This result is then expressed as a percentage of the average buy in. For example, imagine you had played 100 tournaments with a buy-ins. Your total earnings from these games is ,000, which would make your ROI:

x 100 = ,500 (total investment)

,000 - ,500 = ,500 [gross win]

,500 / 100 = [average win]

/ = 63.6% [ROI]

Using this number, you can get an idea of how often, on average, you can expect to make a profit from in the future. Of course, the above example would indicate a strong ROI and you need to have a large sample size to get an accurate estimate of your true ROI.

Although 100 tournaments might sound like a lot, in the online poker world it isn't. To get a more accurate picture of your ROI you need to play close to 1,000 MTTs. Although you'll never know your true ROI, because poker is a never ending proposition, you should be pretty close to true by the time you clock up 1,000 tournaments.

Variance in Poker

The reason you need to play a large amount of games in order to get your true ROI is because of variance.

Although it's nice to live in the moment, poker is a long-term game and for the impact of variance to be watered down to the point where it's not skewing your results, you need to play a lot of sessions.

Let's take a look at what we mean by variance. In concrete terms variance is the statistical distribution of results over a long period of time. In reality this means the fluctuation of results during the course of each session as well as multiple sessions.

Because variance can swing both ways it will mean that sometimes you'll get lucky in certain situations and sometimes you won't, however, it's how you deal with it in both instances that will determine your success rate.

You Can't Win Over Variance

You Can't Win Over Variance

A common trap most novice online poker players fall into is to think that when variance is on their side that it's a true reflection of their skill level. This kind of hubris is something that pushes players to become overconfident in their ability and play games that are beyond their limits; something which is obviously a major problem

And when variance is against a player, they often feel like nothing they do is going to work. Therefore, they often take risks that they normally wouldn't do. By ignoring the best move and submitting to luck is a sure-fire way for someone to lose their bankroll.

Embrace Variance as Part of Poker

As you can see, variance is a technical way of describing the swings of good and bad luck in poker. Because the game contains an element of chance, you can never be 100% sure of your position in any situation and that's why variance will always have an impact on your results.

For example, you may go through a positive patch and win five tournaments in a row and feel like you're the best player in the world. However, this run can't last forever, even if you're making all the right moves, and that's the reason your ROI is so important. Instead of focusing on the fluctuations in your bankroll, you should be trying to improve your ROI as much as possible.

To do this, you need to play each hand to the best of your ability and always strive to make the optimal move. Doing this time and time again will limit the impact of variance on your game and improve your ROI dramatically. Once you manage to improve your ROI, the natural result is an increase in the size of your bankroll.

So, if you want to become a better online poker player, stop worrying about variance, forget about the dollars on the table and play as many hands as you can to the best of your ability. If you can do this then you're ROI and financial health will improve dramatically.

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