Poker & Trading: How a Gambling Game Can Train You to Trade

Becoming a trader (or a professional poker player) means solving a two-sided problem: constantly getting better at assessing your own risk-taking, and learning to develop, refine and deploy ways of trading — making them as effective as you possibly can.

For most people, a trader’s success lies less in some unlikely moment in the spotlight (a shot at manufactured fame) than in the result of steady progress — a continuous, evolving process in which every learner starts out with innate abilities and tries to outperform their peers. This chapter will explore the skills that successful traders share and the common mistakes that stop newcomers from developing their potential. Not all traders approach the work the same way, and not every trading career is alike. Understanding these subtle distinctions sheds light on why the subject deserves deeper study, both in terms of how you progress and how long the learning takes. All roads may lead to Rome, but not all of them lead to the ideal job. In that case, every trader can start by asking themselves another question …

Am I a Poker Player?

Poker is the only casino game that, by definition, doesn’t let you know in advance the mathematically fixed odds of the player winning — whereas those numbers are usually used against you. A common example: slot machines. While chance plays its part at the moment the cards are dealt, a poker player’s odds of coming out ahead over the long run depend mainly on their skill relative to that of their opponents. Poker is a game of strategy, tactics, probability and math. It is also a useful, if simplified, simulation of trading.

Playing No-Limit Texas Hold ‘Em for a meaningful sum of money involves the same kind of decision calculus and personal involvement as managing a trading position. It is by far the most accessible way to learn how to take risks, short of sitting down at a trading desk.

Poker: A Good Way to Train?!

Good poker players are always in a state of intense analysis, because success depends both on an advanced grasp of the game’s underlying probabilities and on a feel for the nuances of human nature. Professionals spend a great deal of time studying their opponents and characterizing their playing style along two attributes: how much risk they take with their money and their general tendency toward passivity or aggression. Depending on their appetite for risk, opposing players are described as “tight” or “loose”. Plotted on crossed axes, opponents are then sorted into a four-cell grid:

The Loose/Aggressive Player

Sometimes called a maniac, this player plays wildly and without control. He is a thrill-seeker who plays for the excitement and takes huge upswings and downswings, rarely holding enough money to withstand the volatility he inflicts on himself and usually ending up broke.

The Loose/Passive Player

He gets involved indiscriminately but folds easily, frittering away small sums of money as the game wears on. This person, mockingly nicknamed a “calling station”, wants to get involved but lacks commitment, which makes them an easy target for aggressive players.

The Tight/Passive Player

He sits at the table waiting for the ideal situation that never materializes. Often labeled a rock, he isn’t inclined to get involved and dislikes taking risks when he does.

The Tight/Aggressive Player

This player will patiently wait until the odds in his favor are decisive, then act with maximum aggression to extract as much money as possible from his opponents at the table.

Poker or Trading: Which Is the Right Approach?!

Most of poker’s great professionals believe that Tight / Aggressive is the only winning behavior over the long run. More interesting still, elite players believe that a tight / aggressive approach to the game is not a set of natural traits. Very few people are intuitively disciplined enough to limit their involvement to situations where they hold a genuine statistical edge, while also being ready to apply maximum pressure on their opponents. This is learned behavior. A winning poker player has consciously and deliberately reshaped their decision-making and their approach to the game to be both more calculating and more aggressive, in order to maximize their chances of success. That is exactly the mindset that suits a professional trader, and this behavioral model fits it perfectly.

A loose/passive trader will always have a position open, but never anything significant, and will tend to give up at the first sign of a loss.

A tight/passive trader is forever waiting — for the perfect opportunity that never seems to come.

The tight/aggressive trader waits for conditions to be favorable, then commits to a strategy with a significant position, managed in a tactical and controlled way.

Poker & Trading: Best Practices

The first thing good poker players do when they sit down at a table full of opponents is, surprisingly, nothing at all. They sit and watch the ebb and flow of the game for half an hour, an hour, or as long as it takes to make a preliminary read on their opponents and see how the game is playing out right now. They will study the bets, how aggressive the participants are, and the quality of the cards being played. They will listen to players talk about how they played earlier hands in order to get a glimpse into their thought processes, their style and their skill level. They will note how much money is in play, and whose, as an indicator of how big the profits on offer are. Finally, they will make an honest assessment of themselves against what they have learned about the game, its participants, its demands and its profit potential relative to the risks involved. As the saying goes, “if you can’t spot the sucker at the poker table, then you’re the sucker”. Smart players know when to get up and walk away from a game that is too tough or doesn’t match their style, even without having played a single hand. They also know when to settle in for the long haul if they find a situation that looks profitable.

Poker & Trading: Conclusion

How can newcomers develop a trading style analogous to the tight/aggressive poker style? By understanding which attributes contribute to success and putting them front and center, and by recognizing destructive tendencies and working to avoid them.”

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