Table of contents:
What do traders and poker players have in common? Which strengths of one activity help the other? Many traders play both poker and vice versa, why this is so and how you can benefit from it, we will look at in this article.
What characteristics do poker and trading professionals have in common? Are there ways and methods to convert special skills in one area into profits in the other? The similarities that define winners in both disciplines are striking. Both have captivated me for years, in the following my attempt to reconcile the fascination of the stock market and poker.
Master of his own time
Since Internet access is almost a new fundamental right, both activities can be pursued practically around the clock. When you want, where you want. Both online poker and forex trading are available around the clock. And both have their so-called “dead” times. Just as European stocks have the least volume around noon and close at 5:30 pm, the fuss on American poker platforms really starts in the evening and actually only at night. Both score therefore with maximum flexibility, just as the addiction potential threatens naturally in addition, around the clock. Who does not have its emotions under control, is lost anyway: only who thinks rationally, chances carefully but fast to weigh up, its strengths and weaknesses knows and also in difficult situations cool remains, has the winner gene.
Risk and money management
There is no way around high variance in poker. Likewise, long streaks of bad luck in trading are part of the game, and must be taken into account in the planning. My personal worst case scenario is thereby: the largest Drawdown/worst loss streak so far * 1.5. Who likes it still more conservatively, even a doubly bad scenario assumes. Such setbacks should therefore not kick the player out of the game financially.
My favorite variant in poker is Turbo Short Hand Sit & Go’s. Here you only play against five opponents, and with rapidly increasing mandatory stakes and small starting capital, you have to get into the top 2 to get paid out. The buy-in for this costs $33, for example. My planning cushion is currently 20 Buy In’s reserve. So to be able to afford the next level, the $44 tournaments, I need 20 * 44 = $880 capital gain, only then I leave the $33 tournaments behind me (for the time being at least, if the 20 Buy In’s are gone, I have to play for $33 again).
When trading, it is about 1% of my capital per trade that I risk. This also allows me to survive painful losing streaks. To uncover errors in strategy or to be able to adapt to changing circumstances before the financial KO could occur.
By the way, one should only do both poker and trading with freely available capital. If you are mentally under pressure to rely on the money or even potential winnings, you will go under terrific pressure.
The mental component also includes setting daily goals. Both in terms of a daily profit and a daily loss. This has probably saved me many a “black Friday” in both areas, for example, that I turned off my PC after 5 Buy In’s or a 3% daily loss. There are just days when Fortuna doesn’t like you.
Chances and leverage
In poker the maximum loss is always limited to the stake. And with small stakes, huge profits can be made. For example, the stake in one of the most popular tournaments, the Sunday Million on PokerStars.com, is $215 and the winner usually goes home with $150,000.
While the trading industry thrives on high leverage, losses are not always limited to the stakes. When trading in futures, CFDs or foreign exchange, there is theoretically a margin call if the open book loss exceeds the account deposit. This is where disciplined risk management comes into play again.
In any case, one should look for situations with the optimal risk/reward ratio. Just as you look for good setups in the stock markets that you know and can assess, you should know your own level and that of your opponents when playing poker. If you are a beginner in a Heads Up (1on1) against a pro, you have even worse chances than 50:50.
Poker is still misunderstood by many as a game of chance. Of course Fortuna has a lot of influence on what cards you and your opponents are dealt. And many so-called “bad beats”, defeats in which one was actually the clear favourite before the last card, remain in painful memory for a long time. In the long run, however, discipline, nerves of steel, capital control, and above all your own tactics will decide whether you will prosper or not.
It’s no different with trading: we discover great setups, the market literally screams for one direction or another, and yet it doesn’t come out the way you think it will. It is not uncommon for the market to be stopped out before the trade would have gone in the planned direction after all. Extremely important in both disciplines is simple: Plan your approach and stick to it. Then wrong trades and lost bets are simply part of the game, which do not throw you off track emotionally.
Journal & Optimization
God, what I haven’t tried in all these years. Tight poker, loose poker, hyper aggressive play, cash game, different tournament formats, etc. One tries, learns (painful because of lost money) and draws the (hopefully) right conclusions. Until one day you find your game, and finally start to make continuous profits.
With trading, the effort is a power greater again, after all, it usually involves larger sums. Trades made in the past are chased through the optimizer to find the best exits, or a method to filter out the one or other bad trade.
In both cases, a clean journal is a prerequisite for sustainable improvement. Only those who keep a record not only of profits and losses, but also of their thoughts and conclusions, can draw meaningful conclusions for a more profitable future.
In poker as well as in trading, the majority of money loses, that is unfortunately a fact. In order to be among the winners in the long run, you need a lot of hard work and discipline. In the same way you have to keep an eye on the costs and try to optimize them. An alarmingly large proportion of actually solid poker players lose money only because of the so-called “rake”. The rake is the portion that the platform operator retains from stakes or winnings.
In trading, costs arise primarily from the spread (difference between the purchase price and the selling price) and commissions to the broker. The differences in rake, spread and fees vary greatly from provider to provider.
Poker players take care of this by opening their accounts with the respective providers through so-called rakeback programs. In this way they get 30-40% of the rake they have paid back.
The broker comparison site www.brokerdeal.de works the same way. To save up to 40% of the spread and fees means in the long run an enormous chance advantage in the shark pool stock market.
Whether poker players are the better traders or vice versa is irrelevant. In any case, the skills of one activity help you a lot in the exercise of the other. The chances of winning, combined with the free time, self-discipline and training of the grey brain cells are my motivation to pursue both disciplines passionately.
However, it’s too bad to risk my money lightly, but if you can’t control your risk and emotions, you should leave it alone. I wish everyone a good hand and good trades!