Trading and poker are often mentioned in the same sentences. Indeed, many new traders or people with no experience in trading tend to believe equate the practice to gambling. At the same time, studies have shown that some of the best poker players tend to do well in trading.
In reality, the two industries are relatively different but they also have their similarities.
In this report, we will look at the key similarities between successful traders and poker players.
Poker vs Trading: Similarities
Discipline and Risk Management
Poker is a risky game. Stories have been told of people who make a lot of money and losing all of it in a single day. Similarly, we have heard stories about poker players who sunk into depression after losing a significant amount of money.
The same stories are told about traders.
The reality? All successful traders and poker players are also great in risk management. They know how to play with funds that they can easily afford to lose. Also, they understand the risks of overdoing trading and poker playing.
In our experience as a trader, we have realized that most traders who lose a big amount of their money are those who open tens of trades every day. The same is true about poker playing.
Reading the Emotions
Emotions are very important in both poker playing and trading. In poker, the most successful players are the people who are well-skilled at reading the emotions of the opponent.
That is the reason why it is very easy to win against a person who is new to the game. Indeed, to most successful poker players, a round tend to start before the game starts.
The same is true about trading: Emotions are the key drivers of the financial market.
That is why terms like following the crowd, fear of missing out (FOMO), and smart money are popular in the market. For starters, fear of missing out happens when traders spot an ascending or descending trend and then follow it.
While the strategy works for a while, most new traders tend to lose money once a reversal happens.
Successful poker players and traders have another thing in common: they all know how to make decisions fast when circumstances change.
In the financial market, successful traders are known to change decisions within split seconds. For example, if you are an equities trader bullish on a stock, you can easily turn bearish once a major event happens.
This event could be a sudden resignation of the chief executive a new merger and acquisition, or even weak earnings. The same is true in forex and commodities trading and in poker playing.
Having a trading plan can give you a big hand in this.
Knowing the rules
Trading and poker have rules, some written, some unwritten. For example, in trading there are rules on risk management (one example, the 2% rule), specific indicators, and treating it as a business.
Similarly, in poker, there are several rules, which include being disciplined, not playing when intoxicated, playing with funds you can afford to lose, and gambling to recover lost funds.
Successful poker players and traders know their successful rules, which is an important thing for the industries.
Poker vs trading: key differences
Now that we have looked at the similarities, there are several differences that exist between the two. Here are some of them:
- Analysis methods - Excellent traders use several approaches to analyze the market. They look at the fundamentals and then combine it with technical and price action analysis. Poker is different because it involves studying the opponen’s pattern.
- Global practice - Trading is a global practice while poker is usually a local affair. This means that trading involves global affair. For example, the war in Ukraine had an impact in key assets like commodities.
- Hard to beat the house in poker - It is often said that it is difficult to beat the house in poker trading. In trading, it is possible to be successful in the long term.
What lessons can a trader learn from playing poker?
There are several lessons that you can learn from playing poker. First, poker can teach you to be patient since successful poker players are usually highly patient. Without patience, it is incredibly difficult to become a successful trader.
Second, poker can teach you to be analytical in nature. Successful poker players always learn to study their opponents. As a trader, you should always learn how to conduct market analysis as well.
Third, poker can teach you the need to accept losses. Poker players always realize that not all wagers are successful. As a result, they are always ready for any eventualities. As a trader, you should be aware that there is always a 50-50 chance that the trades will be successful.
Further, one needs to have a strategy to succeed in the two. Poker is all about strategy. Therefore, as a trader, you need to ensure that you have a solid strategy in place. Some of the top strategies are scalping, algorithmic trading, and swing trading.
Other lessons are that education is important and the fact that perseverence is key to success. To succeed in poker and trading, you need to learn a lot about the two industries.
Poker and trading are often synonymous. Indeed, David Einhorn, one of the best-known hedge fund managers is also a well-known poker player. There are many other world-famous poker players who have made a fortune in Wall Street.
As demonstrated above, these two industries are extremely related although they deal with different fields.