Trading and Poker are the same? Not on the surface, but they have very similar dynamics.
You’re telling us that to be good at trading, you must be good at poker? Well, if you put it in that way, no. However, there are similarities; I will share those with you now.
If you’re unfamiliar with the game of poker, essentially, you are dealt two cards at the beginning of every game. Everyone then decides to either: ‘check’ (not bet and wait to see what other players do), ‘raise’ (bet) or ‘call’ (match the bet that is set in the game to progress) or ‘fold’ (discontinue your position, wait for next game).
After this beginning stage of betting, the community cards are then dealt by the dealer. There are a total of five cards that will be dealt in three sequences; the flop, the turn and the river. Most aggressive betting occurs after the flop, many fold at the flop and few wait for the match up at the river.
How does poker relate?
The guys that are good at poker, they aren’t raising the bet before the flop. It makes no sense to, they are betting blindly and that is a recipe for disaster.
What do the good poker players do if there’s an aggressive bet before the flop? They fold and wait for a better opportunity – then load up heavy and make a huge win. When I play poker I love playing with the guys who bet heavy before the flop. I study their nature closely. I usually see them get wiped out, before the real players start to load up.
Like I said before, most aggressive bets are placed after the flop. This is when everyone knows whether or not they have a high probability of winning the game. Whoever stays in this game after the ‘flop’, can be assumed that they have a decent hand.
After the turn, you have the chance to ‘call’ other bets or ‘fold’ and save a huge loss if you are unsure.
Whoever stays through the ‘river’ is most likely very confident they have the best hand in the game.
In terms of trading – every week there’s new economic data that the big players are looking at. The guys who don’t know what they are doing place aggressive bets before the economic indications. So that’s a lot like the guys who bet before the flop in poker, they are betting blindly.
There’s a reason Mondays usually have very little liquidity, the bankers are waiting for the data that can drive the currencies. Let’s say you’re trading EUR/USD, your hand on a Monday morning may be a clean bounce of the support trend line. However, you know price will most likely consolidate before the ‘flop’ that will be USD Consumer Spending on Tuesday.
Inflation numbers, on Tuesday, are a huge miss for USD. You bet heavy off that support trend line. Price then dips a bit, after profit taking and players waiting for the next opportunity.
Then, comes the ‘turn’ on Wednesday with EUR Employment Numbers. Employment is a hit and the economy is looking great for employees in the EuroZone. You then reload your long position, as the technicals and fundamentals are looking greatly correlated.
Lastly, is the ‘river’ on Thursday with USD Wage Earnings. Another miss for USD and now it seems that the FED will not be raising rates as inflation doesn’t seem to be an issue. You go max position size on confirmation of all analysis and watch the giant profits.
Sit back and wait for the opportunities to come. Do not be afraid to fold, there will be a time to load up heavy. When that time comes you’ll be happy you were so patient.
This was a guestpost written by twitter user @jkentv.