Is forex trading like playing poker? Ahh, this question has popped up a bunch of times in the BabyPips.com forums as many have noted several similarities between trading and the card game. For one thing, both involve playing the odds and determining your risk based on the cards you’re dealt.
With that, it can be said that the best poker players possess qualities that could translate well into the world of trading. Let’s take a look at three main things we can learn from our poker counterparts:
1. Money management
In the game of poker, a player tries to increase his bank roll by making calculated bets based on the hand he’s dealt. Similarly, your goal in trading is to grow your initial capital by risking a part of your account on a trade.
In both cases, one has to know how much to risk in order to stay in the game. Just as going “all in” in poker can either result in a huge win or an early exit from the table, betting the farm in trading can lead to an empty trading account.
Aside from that, it’s not just a matter of knowing HOW MUCH to risk but also WHEN to play. Seasoned poker players such as Big Pippin’s all-time idol Phil Ivey are very selective with their hands, as they wait for good opportunities that they can press to their advantage.
In forex trading, you also have to know when the odds are tilted in your favor, when to add to your position, when to cut your losses, and when to stay on the sidelines.
2. Knowing who you’re up against
A professional poker player’s strategy will depend a lot on who he’s up against. For example, he will probably trade differently when he’s facing amateurs than when he’s playing against other pros.
Familiarity with one’s opponents can also give a poker player a distinct edge. Any poker player can attest that knowing your opponents’ tendencies and “tells” can give you a big advantage in poker.
For traders, it’s important to know the characteristics and behaviors of the markets that we trade. Why? Because these can also give us advantages in the trading arena.
Different pairs have different tendencies which should be taken into consideration as they can determine the appropriate trading approach. For instance, pairs like EUR/JPY are more volatile than pairs such as EUR/CHF, and may warrant wider stops.
3. Controlling emotionsThe best poker players have mastered the art of controlling emotions because showing apprehension or excitement at the table can tip off their opponents. As such, they must take extra care to make sure they keep a straight face – hence, the term “poker face.”
As traders, we must strive to do the same. If you really think about it, to a certain extent, it’s actually easier for traders because we don’t physically have to hide our emotions.
We can frown at a losing trade or jump for joy for a winning trade, just as long as we don’t let your emotions negatively affect our decision-making process.
There you have it – 3 things traders can learn from poker players. But be careful not to treat trading like gambling, folks! Remember, trading is a business more than anything!