There have been several discussions over the years about the similarities between forex traders and poker players. Whether there are on the trading forums, in articles, or even hedge fund managers play or have played poker in the past. Steve Cohen even said in an interview that poker taught him “how to take risks.”
I have even had many family and friends ask me how can trading relate to poker and vice versa. There are other people who are so bored at work or at home where they like to “kill time” by playing in small 2 cents/4 cents poker games online.
Heck if you are going to do that, you might as well open up a trading account with a little bit of money and risk a small amount per trade. Go risk 10 cents or 25 cents a trade. You aren’t going to make much money, but at least you will be gaining some sort of market experience and trading experience. Who knows you may have some lightbulbs and epiphanies where you notice how to harness the market volatility. You may eventually learn how to trade with a bigger account and make a career out of it. Just keep leverage low and risk .25% a trade use stop losses, position size and you will get a lot of experience that way. Get some order flow knowledge and you stand a chance at really making it.
But I digress.
The purpose of this article was to compare the differences and similarities between forex and poker.
Similarities Between Forex And Poker
Both involve risking a pot of capital. You have to be willing to risk something in order to make money. You have to be willing to shove some chips onto the table. With trading, you need to be willing to put on some sort of position when your system gives a signal.
There are definitely similarities between knowing how to take risks in poker and in the forex market. In poker you need to choose if it is worth it to commit more money into the hand. You need to decide what is the right amount to bet. You need to decide when you are drawn dead and should just cut your losses.
In forex you need to choose whether the market is at an appropriate level to put a position on. You need to decide if there will be an explosion of volatility. You need to decide what is appropriate stop loss level. You need to decide how big a position to put on. You need to decide how to scale out. All calculated decisions and risks.
With both forex and poker you can attempt to read other players. You can try to figure out what hand they are holding. With forex you can attempt to figure out whether he market participants are long or short, what their objectives are, and where their pain tolerance points are.
Differences Between Forex And Poker
There are very big differences between forex and poker that must be highlighted and noted.
You need to put in the blinds to play the game. Even if you get dealt a bad hand, every so often you need to keep posting some blinds, while small can add up. With trading, you can be sitting on the sidelines waiting for the perfect opportunity and not have to pay any blinds. Unless you have some sort of data costs or other trading related expenses. But overrall, you can be as patient as you want. You can see as many price bars as you want, or experience as many trading days without having to risk a cent.
With poker, if you are going against an aggressive player you need to keep committing more and more chips into the pot. With trading, you do not need to do no such thing. Even if the market is “aggressive” and volatile, you don’t have to keep risking more and more of your capital. If the market is volatile and you need to trade with increased stop loss sizes, then you position size lower and your risk is the same.
With poker you can have the best hand on the flop and lose to a bad beat. With trading, if you have a nice flop lets say and the market moves in your favor a decent amount, you have the option of moving your stop to breakeven and limiting losses, as long as liquidity allows for it and you can get your stop loss filled. With poker there is no such thing. The money you have committed is already in the pot. If you flop the nuts, then yes you can try to push other people out and win the pot right there. But you can never get your stop to break even and get your money back. It is either you win the pot, lose the pot, or fold. Trading offers you the flexibility that once you are up a certain amount, you can get your stop to break even. You can take profit, you can even add more to the position. Or you can even take some profit off the table.
With poker if you win a lot of money really quickly at a table, the other players expect you to give them a little bit of action so that they can potentially make a bit of their money back. You can’t take some of your winnings off the table, otherwise that would be called “going south.” You could opt to just take your winnings and leave. With trading you can do just that. You can make a killing on a trade, and then go pull the profit out of the account if you so choose. The market doesn’t care. Your broker doesn’t care. It is not going to affect whether you make a killing on the next trade.
With trading, you can be a sniper and wait for the perfect time to strike. You can wait for a trade that is near impossible to lose. You can wait for ‘quads’ or a ‘royal flush’ and make a killing. Trading offers you that ability. You can wait patiently on the sidelines waiting to get the perfect hand dealt to you, and waiting to have the perfect flop, and the perfect turn, and river cards. Proper trading with order flow knowledge opens up those possibilities.
Choose Trading – Order Flow Trading
Fill your mind with order flow generators and scenarios that can actually move the market. At least that is my personal preference. I would rather attempt to go “All In”, or “go for the jugular” on a forex trade than in a poker hand if I had to take a choice. Because there are actually really good trades out there that have a nice reward risk ratio and extremely high probability for success.
Poker players always have their bad beat stories and tales of sensational hands that they made a killing on. Well traders, especially order flow and global macro traders have their own list and stories of trades that both went bad and good.
I would much prefer to remember the ten greatest trades that I had, rather than the ten greatest poker hands. I would much prefer to research the ten greatest trades in history rather than the ten greatest poker hands in history. Because I prefer my mind cluttered with information about trades, that I can actually have more control over. Sure you can’t control unexpected market forces, etc. But you certainly can choose what price to get in, when to get out. You can choose how big of a position to put on. You can choose when to trim and when to add to your position. All great flexibility that poker doesn’t really offer.
The great traders always make more money than the great poker players. A big factor is because you can actually wait for the perfect moment to place a trade. Trading also offers some sort of scaling potential. With poker, playing in the bigger hands and bigger stakes games, it gets more difficult to find willing players. It gets more difficult to find willing suckers on the other side.
But with trading, there is scaling potential, and willing suckers on almost every level. There are losers who have placed hundreds of millions of dollars in trades and billions of dollars in trades yesterday that lost, and they will do so again today, and then into next week. The willing suckers, always have some way to rationalize their trades. They always do, but it doesn’t change the fact that they were on the losing side of the trade.