Similarities Between Trading and Poker

I've been putting off this post for a while, since it requires some thinking and I wanted the post to be complete before I post it. In respond to some previous comments, I'm going to finish it here...

There's something to be said between poker and trading. Although I wouldn't say that I'm good enough of a poker player to actually find someone to stake me a seat in the World Series of Poker, I definately have been playing for a while and finished in the money at a few small tournaments while I'm in Tahoe, Lake Charles, or Oklahoma, places like that, so I would say that I know what I'm talking about at the very least. Besides, when I'm bored at work when the market is slow I'll get on some free app on say, facebook and play a few hands. There are a few other traders I know that does that as well, some play for actual money online.

First of all, on the surface... there's a good amount of sitting and doing nothing sometimes in both trades. I would say, really about 50% of my hands I fold pre-flop. If you are playing more than that, you're probably risking too much, but that's just my style... I usually only play premium hands or like, suited connectors pre-flop. I'm not a Gus Hansen type that get involved in a lot of pots to see a lot of flops. Different styles, and likewise in trading, everybody has a different style. No two traders trade alike. What works for one person might not work for you, so you have to develop your own style. A lot of set ups might look interesting, but usually not good enough for me to get into the trade. Even though both jobs are cool and fun (from a male perspective usually), they can both be a grind. When no good set ups are happening in trading you are just pulling up symbols after symbols until you finally find one that you like. Same thing w/ poker... a lot of times you're just sitting there folding, and folding, and folding.

Both are probably looked down by your parents... as they are not really "skills." I'm sure there are people out there that view us traders as nothing more than gamers, or even worse, gamblers. On the flip side, people that understands the game, especially the novices might view the top traders or poker players as "artists," as in that we do inexplicable things. How do we know the other guy was bluffing and call his big raise? Why did we fold the pocket queens? How did we know the stock was going to go up/down? Why didn't we get into a certain trade when it looks so money? I would say poker and trading are more of a "craft" than "art." You become skilled at it and something you hone and get even better. A carpenter or masoner might've build a beautiful chapel, but he wasn't the one, nor was he required to come up w/ the artistic vision for it. And because it is a craft, it is something that can be learned. Albeit, I would have to add that some people just have the extra special god given talent to be great poker players or traders, that something sets them apart from the rest of the echelon.

In order to be good at trading and poker, you need to be able to assess your winning probability and your risk-reward. In trading we like a 3 to 1 risk ratio. In poker if I think it's a little more or less than a coin flip situation for me to win the hand but it's a 3-1 pot odds, yeah, I think I'd call the bet. If I have 7/3 off suite pre-flop... yeah, I'd fold that hand for sure. Same goes w/ trading. Certain trades have a higher winning probability than others.

Position sizing is also key to becoming a good poker player or trader. The idea is that when to get the most of your money in the pot to maximize your winnings. If the market is trading in a tight range, than you should probably reduce your share size. If the stock is going in your favor strongly, it might be time to take even more shares. If you have the nut flush or full house, whatever, you should probably raise as much as you can to deduce a call from other players; if you only have a marginal hand then you should try to conserve your chips. You gotta pick your fights, pick the spots where the odds are in your favor (because they usually aren't).

There's cost associated in playing. In trading we have the commission and we have to pay the spread. In poker there's the antes, blinds, and the rake. In poker, I'd rather take small pots here and there than to risk losing a big pot. Often you don't care about the small losses, because one or two huge pots will make your tournament. It's the same in trading. I'd rather get stopped out for a small loss than to hold on, or even worse, add to my loser to try to average it up and lose even more. And often, it's the two or three big winners that I have that ended up making my day, month, or even year while on bad days I get nickle and dimed w/ a series of small losses.