I’ve recently become a little addicted to playing poker on my phone, mostly while I’m watching TV. I always lose big time usually under the same circumstances – I catch a card(s) that give me a good hand and I’m so excited about this, I stop thinking about what the other players may have – missing obvious signs that a full house, flush or straight are potentially on the table. So this got me thinking about how playing poker is like trading:
1) Trades you don’t enter are just as important as the ones you do. I used to think two cards of the same suit were always good to bet/call to see the flop, but reportedly there’s only like a 11% chance of getting a flush in Texas Hold’em, so unless you also have face cards or straight potential you can eat through money if you don’t fold bad starting hands. You don’t have to play every hand, and in trading, I have to remember to walk away from less than optimal setups and that’s as key as entering the good ones.
2) Don’t get blinded by seeing a confirmation signal you were looking for. I mentioned this dynamic above in getting flopped a good hand. In trading, I don’t want to “go all in” just because I see a 10/60 SMA cross on a chart but miss or don’t look for other deciding factors. It’s exciting to see set-ups you are familiar with but I don’t want to get caught up in the exhilaration of my find.
3) Don’t miss reversal indicators. Related to the second point, it’s easy to miss things turning against you if you are drunk on what you’re holding. A winner at the flop is not a permanent condition, it could be a dud by the time the river comes – same with trading, I need to remember to take in new information based on the facts and not on what I want or what used to be.
4) Keep position sizes right-sized. If my account grows, it will be tempting to up the ante – but when I go up to the bigger tables, its so easy to lose all my poker money in just a couple hands – and that’s what usually happens to me, and then I have to slowly build things back up at the more modest tables. This goes back to the baseball analogy of going for singles instead of home runs in trading, “small ball” can give me winning days, in part because it’s a good risk management tool.
5) Can’t bluff a chart, but crowd psychology is very relevant. Sure stocks are notorious for head fakes and whipsaws, but I can’t see the equivalent of calling a bluff in trading if you are being objective. However, I want to keep in mind what others participating in a specific stock may be thinking – what they are seeing and how they may react to it. It’s easy to get tunnel vision and focus solely on my actions alone.
6) Don’t get greedy. Along with the modest positions, I don’t want to risk a quarter or a third of my account in subsequent transactions of the stock, especially if I’m being blinded by initial success and not assimilating new information as it comes in. Yeah, I have a full house, but it’s based on twos and threes, and since there are three “2s” on the table, there’s a good chance someone else at the table will have a pair higher than a “3” to give them a full house that can beat mine. My reaction previously, raise too high and get called and promptly lose a big hunk of my gains and overall money.
So here’s hoping my fantasy poker will help with my virtual trading. Ha, ha. I have decided to set April 1st as my new target date for trading with real money. This will give me 90 days in the new year to continue making paper trades and fine tune my strategies.
With playing cards I have recently set some rules I’m strictly trying to follow. Poker, and trading to a certain extent, requires you to be flexible at times, maybe even breaking your rules occasionally. However, its hard to be disciplined – so hopefully I will learn to control my gambles and long shots (and not get blinded, or miss things, etc). Hopefully, that self discipline will be a personal skill that can spillover to other arenas, including trading.