Thrill and risk, greed and fear are permanent companions of all gamblers and traders. These sensations and features of character are common for professional players of poker and traders in the financial markets. Experts in trading sometimes participate in poker tournaments and they often win.
Poker players learn the rules of risk and capital management and join the currency market, trading currencies, futures and other financial assets. Is there much difference between bluffing in poker and bluffing in politics? Is there much in common between the most popular card game and trading?
Best decisions amid imperfect information
In both cases a person concerned needs to make the best decisions given sketchy information. There is only one reason why various strategies have been developed, as well as methods of trading or playing a poker, the rules of analysis and risk management have been invented, as well as many other tips. These is all for the reason that it helps to make correct decisions amid imperfect information.
Trading in the financial markets is based on the financial data, which is unknown to the majority of traders prior to the official publication. Price movement is also affected by the political events and even environmental situation; therefore a trader has to cope with the lack of information in making decisions. Both in a poker game and the currency trading you cannot predict the results.
Money management and risk elimination
Methods of money management help to eliminate risks in trading and in a Poker game. In terms of a poker game money management is called bankroll management. Money management teaches a trader correctly estimate the volume of the trading positions based on with the available data (price levels, patterns, other participants, risks, etc.).
In addition, a trader can use psychological factor, which is based on the following formula: act when others are scared to act. This tactic works both for traders in the market and for players in a poker. Bluff and scare sometimes help compensate lack of confidence; it can change market direction and fight against the strongest of opponents in a game or the market competitors. A tactic of bluff and scare can be a useful trick!
Both emotional and rational decisions
Mathematical analysis in poker, as well as technical and fundamental analysis of prices in the financial markets is of great assistance, but no more. It is you who have to take into account actions of the other players and analyze their possible decisions; that is why it is important to perceive the market or a game as they do.
In poker, a player can use psychological knowledge choosing the tricks in accordance with the character of an opponent. Fundamental analysis of the market often includes macro- psychological and social psychoanalysis methods, which are useful in analyzing data (big data, data science). These methods recommend:
- make decisions on the basis of empathy and analysis of emotional state of the opponents;
- eliminate psychological distortions, such as non-acceptance of losses and errors in planning, or insisting on its own opinion;
- develop psychological endurance, to analyze your own experience and personal and practice of the other traders, read literature and latest researches.
Mathematical analysis and modeling
It's all about probability theory and analysis of correlated macroeconomic factors. In Forex this analysis is made automatically, in case of a poker game, a player has to learn to evaluate and to apply various algorithms and strategies and risk elimination.
The most famous mathematical systems are martingale and parlay:
- Martingale: a loss of a position is compensated by the increase in volume of the next position until you cover the losses and gain profit. After that you use the minimum amount for trading or in a game.
- Parlay or anti-martingale: after a successful position the volume increases.
There are many other mathematical systems, which be used for trading. They are used in indicators and expert advisors for technical analysis; in a poker game automation is prohibited, although online versions of this game partially use automated analysis (calculators and other software). A player has to learn to count!
Forex market and a poker game have a lot in common: money management and risk management, mathematical analysis, psychology, competitors. A Poker teaches to use good tactics, in combination with situational analysis. Trading at Forex teaches you to use semi-automatic analysis, long-term strategies and to cope with plenty of information.
Therefore, you need to practice, experiment, gain experience in tactics, strategies and psychology and you will be able to cope with both situational and long-term risks.
Traders who play a poker game
- David Einhorn, a famous American financier and trader, a founder of hedge fund “Greenlight Capital”: he earned about $5 million at the tournament “World Series of Poker” (WSOP)
- David Frankenberger, a trader of JP Morgan: he won about $2.5 million at WSOP in 2011-12.
- Bill Chen, a head of statistical arbitrage at Susquehanna International Group, he won $1.6 million at WSOP in 2008.
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