REAL WORLD

 

Gaming Theory

 

Trading And Poker Parallels

 

Risk? Yes. Reward? Of course. But the similarities go deeper.

 

by Don Bright with Darren Clifford

 

A couple of months ago, I was asked about the similarities between stock trading and what seems to be the new national pastime, poker. Las Vegas is home to some of the world’s best poker players, and Bright Trading is headquartered in Las Vegas. It just so happens that some of the world’s best poker players are also Bright traders. My brother, Bob, made his first fortune playing blackjack back in the 1970s. He took that money and bought a seat on an exchange to start trading options in 1978. Over the last couple of decades, we have always played poker at our family Christmas gatherings (everyone should have a family tradition, right?).

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, Ferguson has a doctorate in computer sciences. Ray Bitar, our Los Angeles office manager for many years, teamed up with Ferguson and several top poker players to form a new business venture, Full Tilt Poker. Bitar is now the Ceo (of TiltWare LLC.) of what has become one of the most popular online poker sites among serious players.

    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 Anaheim, CA, in 2005, and asked the players who are also traders to share their thoughts about the similarities between the two activities. Here is a listing of some of the basic correlations:

 

Trading                                        Poker

Discipline                                    Discipline

Money management                 Money management

Risk/reward                                Risk/reward

Edge                                            Pot odds

Timing                                         Timing/seat placement

Loose trades                              Loose play

Bluffing                                        Bluffing

Emotions                                    Emotions/tilt

Hedge                                          Partners

Patience                                      Patience

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 don@stocktrading.com.

 

References

·    www.stocktrading.com/pokerpages.htm

·    www.fulltiltpoker.com  

·    www.worldseriesofpoker.com

·    www.pokerpages.com