I do and I remember my experience very well. It was in 2000 in a plush casino in Tunisia. From the grandeur inside it would not go amiss amongst the palace like casinos in Las Vegas. The buzz being created from the different noises produced by the various tables and machines the casino had been kitted out with plus the joy and screams of the revellers inside was simply electric. The moment I walked in, I was taken away by this human tsunami of gambling energy and excitement.
I was not much of a gambling man myself so I stuck to what I knew which was BlackJack. I won some hands and lost some hands and I walked away with pretty much the same amount of money in my pocket. However, what I remember most is walking around in awe of those at the poker tables especially those with the mountain-sized stack of chips next to them. It just seemed so cool and captivating. I did not have a clue about the rules of poker so the first thing I did when I got home was to read up about them.
Poker is a very interesting game where the psychology, strategy and risk management has similarities to trading. Now lets be clear here. I am not talking about the amateur poker player who has the odd flutter now and then. I am talking about the professional poker player who has learnt to make a living from it. One who has perfected his technique and is able to gain substantial and life changing monetary gains from it. One who has turned it around from being a game of chance to being a game of odds and high probability setups.
So how does the strategy of a trend trader mirror that of a poker player?
A private trend trader only enters trades where price has a high probability of going on to reach a predetermined target. This high probability is called an edge and is determined through a number of rules that have to be met through technical analysis. An edge, in gambling, is defined as a systematic advantage a player has over his opponent. By using this edge, a private trend trader aims to catch large movements over time, as much as several thousand pips, but with minimal time spent in the market.
In poker, a professional will only risk his chips when he feels that his set of cards plus those on the table have a higher probability, hence an edge, of taking the pot then his opponents do.
How does the psychology of a trend trader mirror that of a poker player?
A private trend trader understands that serious monetary gains are made by trading with that edge over a long-term basis. He understands that over the course of many trades, he will probably have more losers than winners but the winners, leveraged by compounding, not only cover the losses but bring home the life changing money that most people set out to achieve but very few do. The traders who have mastered this total an unbelievable 5% and are called the Smart Money.
Key to this psychological approach to trading is that it allows the emotional element to be removed, namely hope, fear and greed. It is this consistent, mechanical, stress free approach that not only brings the huge monetary gains that a trader wants but the stress free lifestyle that comes with it. By trading using the daily and weekly chart, minimal time is spent in the markets, maximum results are yielded and the one thing we require most of all - our time - can be spent exactly how we choose to. After all, who wants to spend all day staring at a screen?
A professional poker player has the same psychological approach where he chooses to only bet on the high probability cards - the edge - that appear over a number of hands. He simply folds on the cards that are not. It is this discipline and consistency that not only makes a great poker player stand out from the rest but removes the emotional element when sitting at the table. Emotions will of course affect his approach and game strategy.
Where the lifestyle of a professional poker player matches that of a professional trader is that he only plays a handful of tournaments a year but unlike a trader probably has a jet set lifestyle playing in tournaments and casinos around the world. He luckily also has that wow, thats cool factor that does not really come with trading. A top Smart Money trader, though, can afford to have the jet set lifestyle from his massive earnings from trading.
Risk small WIN BIG? Possible?
It is the final element that determines not if but when a trader is looking at an empty trading account and a poker player left empty-handed with all his chips taken by the smarter players at the table. This is called risk management.