Trading Lessons from the Poker Table

If you know anything about us, you’ll know that we enjoy studying disciplines outside of trading to see if there any transferrable skills that we can use to help build our mental edge as traders, and poker just so happens to be one of those cases! In today’s episode, Mark discusses some of the similarities between poker and trading and also breaks down some key lessons that professional poker players can teach us about successful trading. For those not familiar with the game of Texas Hold Em’ poker, players win by betting against other players until one person is left with the entire pot. The betting is based on the perceived value of the hand that they hold relative to what they believe the other opponents at the table have. There are several betting rounds between the flop, the turn, and the river and success take discipline, patience, and diligence! Interestingly enough some of the best candidates for Wall Street trading jobs back in the day happened to be professional card players because these individuals understood that if you managed risk accordingly and executed your edge with consistency, that you were not gambling, in fact, you were simply playing the ODDS! What are the synergies between trading and poker?  Risk  Poker players have a pot or stack When you have what you perceive to be a decent hand in poker, you will bet some of the pot Have to risk when you believe that you have a chance of success The guy that is betting loosely and playing each hand will get lucky from time to time but at some point, someone is going to have a much better hand and will clear him out. Traders have an account and will bet a certain portion of the account size when a setup forms as part of their trading plan If you are ill-disciplined and betting on whatever looks good, then you might survive for a while with proper risk management, but eventually, you will get wiped out Managing risk and tolerating large risk when the time is right Knowing when to put in a certain bet and when to go all-in; in poker, there are some formulas as it relates to correct bet sizing as a percentage of a pot that is in there With trading, the general formula is to risk no more than 1-2 % of your risk capital Patience When playing poker, you are looking for your best hand; eventually, you get a hand that you want to play and you can start betting some of your pot on it The amateur or hobbyist plays for the thrill whereas the professional plays to win In trading, you are waiting for your highest quality setups and you do not want to get involved in the market for the sake of action but only when your edge is present A lot of the time is spent sitting on the hands and doing nothing Self-Control or Awareness Both poker players and traders have to be self-aware of their emotions so that they do not impact their decision-making processes If you are swaying from one polarity to another (angry on one side; excited on the other side) you become vulnerable to going on tilt 3 Things that Traders can learn from Professional Poker Players: Disciplined Money Management  In poker, a player’s main challenge is to stay in the game long enough to have the chance at winning some big pots. To do this, stringent management of their chips is paramount! Going all-in can bring a big winning but it can also get you a quick exit if things don’t go your way. Proper bet sizing is important to stay in the game in the face of a streak of losing hands. The concept of “tilt” in poker describes a state in which sheer frustration with the game takes over and distorts one’s betting If a player were to go on tilt after each losing hand, overjoyed with winning hands, and irritated with mucked hands, they would be relatively easy to read and would be making decisions based on emotions instead of probabilities The goal is to win the game and not the i