What Forex Traders Can Learn From Poker Players
Lessons forex traders can learn from poker players
The volatility of the financial market resembles a game of poker in that players must make judgements in the dark mostly by analysing the circumstances and estimating the likelihood that their opponents will have a better hand. The fact that professional poker players make wiser financial judgements than the general public should come as no surprise.
Lessons forex traders can learn from poker players:
- Managing money
- Understanding what you are dealing with
- Assiliminate a lot of information
- Emotional self control
- Recognising rules
- Makeing quick decisions
- Risk management
Poker players are familiar with the risk-reward connection, the cornerstone of trading. Making well-considered selections increases your chances of success in both poker and trading. Poker players are skilled risk-takers; they can judge when to go all-in or play it safe. A great investor would only invest a certain amount in hand after carefully examining the market conditions, just as any decent poker player would determine the proportion of the pot to be played in a specific position.
Managing money
A poker player will make calculated wagers based on the hand he is dealt to grow his bankroll. Similarly, while trading, you aim to increase your starting capital by putting a portion of your account at risk. To remain in the game in either scenario, one must know how much risk to take.
Betting the farm in trading can result in an empty trading account, just as going "all in" in poker can lead to a sizable profit or an early exit from the game.
Knowing WHEN to play is just as important as knowing HOW MUCH to risk. Experienced poker players like Phil Ivey are picky with their hands as they watch for favourable situations they can take advantage of.
You must also understand when to add to your small position losses and avoid trading regarding forex.
Understanding who you are dealing with
The opponent a professional poker player, faces will significantly impact his approach. He may trade differently when playing amateurs than when competing against other professionals, for instance.
Additionally, knowing your opponents well might give you a considerable advantage when playing poker. Knowing your opponents' habits and "tells" can give you a significant advantage in poker, as any poker player will agree.
Traders must understand the traits and tendencies of the markets we trade. Why? Because they may also benefit us in the trading world.
Different pairs have different characteristics to be considered, as they can influence the best trading strategy.
Wider stops may be necessary for pairs like EUR/JPY because they are more volatile than pairs like EUR/CHF.
Assimilating a lot of Information at once
Poker players need to store a lot of Information in their minds. They must also read the situation quickly and implement their pre-acquired knowledge. The same goes for forex traders. There is an ocean of Information for them to learn. They then have to use them at the right moment for a successful trade.
Emotional self-control
The top poker players have perfected the discipline of emotional restraint since displaying anxiety or excitement in front of their opponents might give them away. As a result, they have to take extra care to maintain a straight expression, giving rise to the nickname "poker face."
We must make an effort to follow suit as traders. In some ways, it's simpler for traders because we don't have to conceal our feelings physically if we think about it. If we don't let our emotions influence our decision-making, we might frown at a loss transaction or jump for joy at a winning trade.
Swift decisions
Another thing that successful traders and poker players have in common is that they can all react quickly to changing situations.
Successful traders are renowned for changing their decisions on the financial market in only milliseconds. For instance, an optimistic equity trader about a stock may quickly become bearish after a significant event.
An abrupt departure of the CEO, a new merger or acquisition, or even disappointing earnings could qualify as this event. The same is true for playing poker and dealing in commodities and FX.
A trading strategy can help you with this.
Recognising the rules
There are both written and unwritten rules in both trading and poker. For instance, there are guidelines for managing risk in trading (for instance, the 2% rule) and for using specific indicators and conducting business.
Like other games, poker has several rules, such as maintaining discipline, abstaining from playing when intoxicated, playing with money you can afford to lose, and gambling to make up for lost money.
Successful traders and poker players know their success rules, which is crucial for their respective professions.
Risk management
Managing your chip stack is a key component of the game's strategy in poker. Any poker master will tell you not to risk all of your chips on a poor hand. Additionally, you don't want to play it too safe with a strong hand; you need to know when to push when you are up but also how to avoid losing everything.
Like a poker player who receives pocket aces with an ace on the flip, a professional trader knows that the trade must be placed when a low-risk opportunity is disclosed. In contrast, a poker player will fold fast when he is outmatched or dealt a poor hand to save his chips for a stronger hand later.
Poker tournaments always have a start and an end, which is a key distinction between poker and trading. In contrast, when we trade, we choose whether to continue or stop when the "game" is ended. This poses a significant dilemma for traders since it encourages them to trade excessively, inevitably leading to financial loss. In essence, it is one way that trading might resemble gambling if we let it.
You need to be aware of when your edge is present and when it isn't, and if it isn't, you should stop looking at the charts. You are likely to take a low-probability trade if you sit there anxiously attempting to "find a deal," which means you are risking your money with a very slim possibility of success.
In both trading and poker, the objective is to manage your capital/trading chips so that you don't lose too much due to emotion or bad hands and to maximise your profits when strong hands and high-probability trades present themselves.