“How Traders Can Learn From Professional Poker Players”
Poker and trading share numerous similarities, and traders can benefit greatly from learning from some of the best poker players.
Successful poker players understand that proper risk management and consistent execution of an edge negates the element of gambling, transforming the game into one of playing the odds. Poker and trading become akin to gambling when emotions take over, leading to a loss of discipline and improper money management.
This article explores the valuable lessons traders can learn from professional poker players
A poker strategy with a positive expectancy over a series of hands requires consistent execution. The same applies to trading. Traders need a strategy or edge that yields a better-than-random expectancy in the market. This entails using price action trading strategies to enter the market, winning and losing trades, but ultimately coming out ahead by sticking to the method.
Patience and discipline are crucial for both poker players and traders.
Knowing when to hold ’em and when to fold ’em
Professional poker players understand when to continue playing a hand and when to take a loss.
This ability to discern when to fold or hold can be transferred to trading. Traders can set and forget their trades by defining their risk and recognizing their trading edge. ‘Set and forget’ trading refers to the mindset of allowing the market to progress without interference.
Just as managing a chip stack is vital in poker, risk management is essential in trading.
Knowing when to push when an edge is present and when to preserve resources is a skill that both poker players and traders need to develop. A professional trader identifies low-risk opportunities and takes advantage of them, just as a poker player would capitalize on a strong hand. Conversely, both traders and poker players must recognize when to walk away from unfavorable situations to conserve resources for better opportunities.
The importance of self-control
Unlike poker tournaments that have a start and an end, traders determine when their ‘game’ is over.
This can lead to overtrading and, ultimately, losing money. Traders need to recognize when their edge is present and when it’s not, and if it’s not, they should step away from the charts. The objective in trading, as in poker, is to manage capital effectively and avoid losses from emotion or weak positions, so that when high-probability trades or strong hands arise, maximum gains can be made.
Emotional stability and remaining calm
Professional poker players and traders need the ability to process information quickly and make decisive, confident decisions without self-doubt.
Those who make decisions based on emotion or without a solid understanding of the game will quickly lose their resources. In trading, emotional decision-making can lead to losing a significant portion, or even all, of the funds in a trading account.
Traders can learn a multitude of valuable lessons from professional poker players. Both trading and poker involve risk-taking, probabilities, and mental discipline. Many successful money managers were once professional card players.
One notable example is Bill Gross of PIMCO, the world’s largest bond fund, who believes that to be a successful investor, one must be “part card player, and part analyst.”