Trading And Poker Parallels
Risk? Yes. Reward? Of course. But the similarities go deeper.
A couple of months ago, I was asked about the similarities
between stock trading and what seems to be the new national pastime, poker.
Now, for several years
we have had a trader named Chris “Jesus” Ferguson in our organization, and I
always thought it was neat to have a younger guy with an interesting appearance
as part of our team. To prove
that you can’t judge a book by its cover,
These business and personal
friendships have allowed me to look inside the world of professional poker. My brother and I actually sponsored a
poker tournament in
Money management Money management
Edge Pot odds
Timing Timing/seat placement
Loose trades Loose play
Tape-reading Read the players
Conceal position Conceal strength or
weakness of hand
Market on close imbalance Last player (button)
Size of order Size of bet
Knowing “players” Knowing players
Both professions can be performed from virtually anywhere on the planet (and even “virtually”). Success in either field provides a great feeling of independence, and of course, the financial rewards for both can be great. Let’s explore a few more points:
1 Tilt. Emotions do not dictate the cards or the price of a stock, but they do affect how we react to them. Being able to stay away from emotions and only play or trade probabilities leads to success in both trading and poker.
2 Number of outs. The more ways you have to make a hand, the greater your probability of successes. In trading, the more ways you have to hedge a trade, the more outs you have, and the greater your chances of success.
3 Table talk. Institutions are always upgrading, downgrading, and making comments about stocks that they own! Table talk does not change the cards at the table, or the ability of a company to make money. Institutions and players use table talk for deception.
4 Capital management. Managing your capital in poker is as important as playing your cards. In trading, not only do you have to manage how much of your capital you will risk on each trade, but also how much capital you will leverage to increase your edge.
5 Varying your bets. One of the most powerful tools in any game is the ability to change your bet when you have an edge. This is true for blackjack, poker, and trading. You don’t start a new strategy with 5,000 shares; you work up to bigger trade size.
6 Betting for information. In poker, a small bet is sometimes used to gain information about your opponent’s hand. In trading, you may use a small trade to gain information about the presence of buyers or sellers. With both games, using that information is key to your eventual success.
7 Pot odds. If the amount of money a player expects to win is worth the risk, poker players will be in pots that they have less than a 50% chance of winning. Similarly, traders will take trades that have a small probability of being successful on the grounds that they will gain a large amount if they are right.
8 Know your opponent. Traders will watch how a stock prints a buyer or a seller the same way a poker player will watch the betting strategies of their opponent.
9 Play online. With the rising popularity of the Internet, you can always find a game of poker, or trade from anywhere in the world.
10 Discipline and patience. Both trading and poker are games of discipline and patience: knowing how and when to play, and then executing to the best of your abilities. For those who excel at one game, there is a good probability you will also excel in the other.
Of these points, one of the most important things to remember about both trading and poker is that you must enjoy what you’re doing, do it well, and have some fun while you’re at it!
Don Bright is a principal of Bright Trading, an equity trading corporation. He may be reached at firstname.lastname@example.org.