Poker and Trading Part I:

Both poker and trading can be considered financial 'games'. Games where insights into human nature are crucial, and especially insight into our own emotions. The good trader/player knows when to push hard, and when it's time to retreat. Alertness, relaxation, detachment and other complex mental traits have to develop if one is to succeed in the long run.

This article considers one strategy - called "tight" in poker and compares it with trading. In poker almost every table has a very tight player. They only open with aces suited or a high pair. This is a reasonable strategy and mostly these players make small profits or break-even. They rarely make large gains though because other players know that once this tight player raises he has a good hand- and so everyone folds around them.

Trading has a similar type of player. Many traders wait for all the indicators(fundamental and technical)to line up and confirm that the trade will go in the expected direction. And usually it does. However, it may soon change direction. This is because everyone who was going to go long has already gotten on board. This is not to say that waiting is a bad strategy - it is a safe one that requires patience. Most of the time it is the best strategy. But sometimes, like on the poker table, we need to mix it up.

In poker our tight player gets dealt a pair of aces. This is what he has been waiting for and he comes out guns blazing. On the flop there might be some dangerous cards - such as 2 of the same suit - indicating that another player could have a flush draw... Another card with the same suit comes on the turn. But he ignores this and continues to bet. At the river the opponent turns over a 2,3 suited to the 3 table cards and wins with a low flush. Our ACES man is devasted. He had the much higher hand before the flop- it doesn't seem fair! But poker is about the cards both now and in the future.

Likewise, the very patient trader often finds it hard to get out of trade once it goes wrong. He has spent much effort identifying the right trade and been so patient waiting for it to set up that he feels almost cheated if the trade turns wrong. He ignores what is occuring now because he is fixated on the past inputs. A bad result may be even more devastating for the trader: At least the poker player can know the odds, and understand that he may have had 70% likelihood of winning, but that he got unlucky. But such odds calculations are not available to the trader- he may be genuinely mystified. And the more emotion and money invested in the trade the more the effects are multiplied.

Part II (to be published soon)looks at gaining an edge. Trading is not that different from the way a casino is run. There are a few hundred casinos and tens of thousands of players. Often the players get lucky but over the long run it is the casino that continually adds to its bank account.When I first started trading I made some good bets and took fast and large profits. It seemed easy. It only took a month before those first profits went and another three months before the remainder of the account disappeared too. I was playing like a typical gambler. What I gradually learned, the hard way, was that a successful trader becomes the casino, not one of the players. He finds an edge and works it, looking for consistent small increases in equity. Do you have an edge? if you are not sure what your edge is then it is likely you don't. As they say in poker, 'If you can't spot the sucker at the table, then you are the sucker'. And remember, even slotmachine gamblers have winning streaks. If you have been winning do you have a real edge or are you only getting lucky. (To be continued).
By Robert Kirk

Author Bio
theforexmanager.com provides software, forex signals and education on trading.

Article Source: http://www.ArticleGeek.com - Free Website Content

Related Gambling Articles

©2006 ArticleGeek.com: Free Website Content - All Rights Reserved

Authors
Your Account / Login
Article Tips
Author TOS
Article Benefits
Editorial Guidelines
Submit Article

Publishers
Publisher TOS
RSS Feeds

RSS Feed Parser

Resources
Resource Directory