On episode 52 of the TRADEPRO Academy podcast host Mark Borszcz discusses the similarities he sees between day trading and poker. The two activities seem to have more in common than not, especially in the behavior and mentality of those who consistently win. While playing poker and day trading may have separate sets of rules, their paths to success may be more alike than you think.
Whether you’re a seasoned pro or an amateur just dipping your toes into either field, you can easily be overwhelmed by the number of tips out there. Forming a plan and staying disciplined can help filter the noise and hone you into the elements necessary for your success – something true to both the worlds of professional poker and day trading.
RISK VS. REWARD
In poker, each player begins with a stack of chips. These represent each player’s bank roll, similar to a trader’s account. As each new hand is dealt, players have a chance to bet or fold. Whichever they choose depends on what they believe their odds are. The amount a player bets is based on their current bankroll and how strong they believe their hand is. No single hand should have the ability to wipe you out.
Similarly, traders manage individual portfolios and plan trades based on overall strategy. No single trade should have the ability to wipe out the account. Putting up risk capital when the reward outweighs the risk increases the odds of leaving with more money than you originally sat down with. In both cases, the ultimate result depends on two major factors: patience and self-control.
PATIENCE IS A VIRTUE
The best poker players and traders aren’t afraid to observe, analyzing other players and conditions until they find the best chance to yield the most successful results. Poker players wait until they are dealt the best hand for the individual circumstances of the game and that moment within. A hand that may seem objectively best may not be at the time, depending on the cards held by other players and on the table.
The best poker players maximize their individual chances of success. The same is true for trading. Successful traders wait until the market has formed a favorable risk/reward profile in order to execute and achieve maximum returns. In both cases, the winners of the pot – or trade – are the ones who have defined their process for success and wait until external conditions match up. This requires a disciplined strategy of risk and trade management.
SELF-CONTROL VS. SELF-AWARENESS
Sports show us examples week in and week out of individuals and teams responding ‘in the moment,’ with emotions often getting the better of them. Losing self-control or allowing emotions to impact performance can negatively affect the player and the entire team. Poker and trading are no different.
In poker, letting your emotions get the best of you could cause you to go “all-in” on a hand that you know isn’t the best for your strategy, or to fold on a hand that is. In trading, an unexpected loss could lead a trader with little self-control to overcompensate and make a trade that could ultimately cost even more in the long run. In poker, this concept is known as “going on tilt”, when a player gets overly frustrated or enthusiastic about a hand or play, distorting the player’s betting process. This “tilt” can carry over into trading, where even an experienced professional begins relying on their emotions over their process.
Here are three takeaways day traders can learn from the world of professional poker:
1) DISCIPLINE WITH MONEY MANAGEMENT
In poker, each player’s goal is to stay in the game long enough to win. This requires delicate management during each hand. Playing defensively means passing up opportunities, while playing aggressively means setting oneself up for disaster. In trading, profitability requires risk management strategies and the discipline to follow them. Letting emotions get the better of you can result in more losses than wins.
2) BE WILLING TO NOT PLAY
Knowing when to play a good hand is just as important as knowing when NOT to play a bad one. In poker this is called “mucking,” and players must analyze their environment and other players to wait for the moment when the cards are dealt best in their favor. New traders can feel like if they aren’t participating in the act of trading, they are losing. Mastering the ability to realize when is, or isn’t, the best time to trade is hard. By understanding the art of not trading when market conditions don’t adhere to your portfolio, even an amateur trader can find themselves copying behaviors of seasoned professionals.
3) KNOW WHO YOU ARE UP AGAINST
This idea holds true for anything in life. Knowing your opponents is a crucial key to success.
At the poker table, players can more easily pick up on audible or visual cues from other players, crucial tells if read and analyzed correctly. Even in online poker, players inadvertently provide similar “tells” by the way they play. Similarly, traders have one critical piece of information to rely on, the market itself. Each hand in a traditional game of Texas Hold’em could be one of over 1,300 possible combinations. For traders, advances in trading technology have made it easier to identify market trends and order flow. This gives traders the ability to spot the intentions of other market participants and use this information to make better trading decisions.
Tradepro Academy transforms individuals into profitable traders, providing a community for traders looking for constant financial and personal growth. For more information, please visit tradeproacademy.com and follow @TradeProAcademy on Facebook, Instagram, Twitter, and YouTube.
George Papazov founded TRADEPRO Academy in 2012 Papazov to inspire, educate and empower at-home traders and investors. A self-made millionaire and entrepreneur, Papazov’s self-published book Path to Profit: A Trader’s Journal reached Amazon bestseller lists. With seven years of work for a major international bank he is now an industry-leader in trading currencies, stocks, options and futures. Papazov provides a daily Morning Market Video Update to 39,000 YouTube subscribers, on topics from OPEC to stock updates, breaking market news, and Brexit to interest rates. His popular video training tutorials include TradingView Tutorial and How to Use Fibonacci Retracements. Papazov lives in Toronto, Canada.
DISCLAIMER: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks and options may fluctuate, and, as a result, clients may lose more than their original investment. Prior performance is not indicative of future resuls.
None of the content published on TRADEPRO Academy constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.
