Trading and Poker

Why do I think of trading as being similar to a poker game?

If you’ve ever played in a no-limit poker tournament you know that it’s smart to wait for the very best cards before you jump in. When you play no-limit there is a chance that you might get called and have to either put up all your money on one hand or walk away. This experience teaches you to wait for a damn good hand! AND you learn that even if you have pocket aces you can still lose.

Well, in trading we don’t go all in with every trade (or we have very brief trading careers lol),  using smart money management is key. However I know that my weakness has been going in too much. It’s easy to convince yourself to take a trade when only risking 1 or 2%.  However as the losses accrue it becomes so much harder to come back.

Let’s say that you risk 5% of your account and during a few weeks you get down 10 trades, now you only have 50% of your capital left. Even if you make a 50% gain you are only at 75% of where your account was before.

Casinos know this and make millions of dollars everyday by just having a small edge. Do you honestly know what your edge is? Do you know the probabilities for each trade that you take? Are you consistently enacting your strategy or do you sometimes take trades on a whim?  Do you think that you can predict where the market will go with high accuracy?

These are important questions to ask yourself. Personally, I only go in when I know the odds are stacked in my favor. Because I am consistent my account grows nicely and I don’t suffer from emotional trading which can be devestating.