Marc Waldon

Texas Hold Em & Trading Forex?

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Texas Hold Em & Trading Forex?

What Texas Hold Em’ Can Teach Us About Trading & Forex; Great article by our resident forex mentor & keen poker player, Omar Eltoukhy. We often tell you that if the markets are flat but you need excitement then take up poker or some other past time for FUN. Trading forex should not be fun, its a business! However, as Omar points out in this article, PROFESSIONAL poker players and successful forex traders have more in common than you might imagine:

poker n forexI know what you’re thinking…..you’ve already heard from your co-worker, neighbor and mother that “Forex trading is just gambling, and you can never make money.”

So you see the title of this article and think “Oh fantastic, now this guy is going to tell me just HOW much trading is like gambling.”

Sorry folks, but not only have I learned that trading done responsibly is NOT gambling, but I don’t even consider Texas Hold Em’ gambling once you get beyond a certain skill level.

What I have learned though, is that there are many skills professional poker players posses that apply very well to trading.

Sure, there is an element of chance involved in both…..but who are we kidding??  Every time you get behind the wheel of the car, or simply take another step outside, you are entering into life’s big wheel of chance of the billions of possible things that can happen to you.  But do we simply stop driving or moving because there is a statistical chance that tragedy may befall us??  No way!! (I speak of most of us here)  We choose the situation that serves us the best and go forwards in our lives.  But back to our poker and trading discussion.  Here’s a few things we can learn from poker to help with our trading:

  • You Play the Player, Not the Cards:  Beginners at poker are totally engulfed in the “nuts and bolts” of which hand beats this, what to do in this situation, how to bet, etc…..  More experienced players realize that everyone gets the same random “roll” of the way the cards come out, but there is an advantage to be had in understanding how to psychologically beat your opponent.  In trading, this comes down to the difference between learning “techniques” and how the market works versus your own personal psychology in your trading.  I have found it is relatively easy to find out information about which methods work in the market, but remarkably difficult to become a psychologically successful trader.  The former takes very little time, and the latter can take years to develop.  To move further ahead in trading, as in poker, focus not on your system’s “failures” but your own psychological battles.  Many times, rather than the system not being profitable, it is the trader who lacks the discipline and approach to make ANY system profitable.
  • In The End, It’s YOUR Butt In that Seat:  You can read all the books, watch all the pros on TV, but at the end of the day, you are your own player.  No two players really play cards totally alike and simply asking your friend sitting behind you at the poker table “what you should do” won’t help you in the game.  Why??  The other players will see that and change their game to compensate, either in the form of seizing on your weakness, or avoiding the hand altogether.  It’s simply too dynamic just like trading.  Having someone “spoonfeed” you trades isn’t going to help you become a better trader.  Although it is wise to learn from others, the only true path to success in forex just as in poker is taking your own path and doing things your own way.
  • Understanding The Odds Makes You a Better Player:  More advanced pokers players can tell you both the odds of them winning the hand with what they’ve got, AND the reward/risk ratio of taking the next bet that’s out on the table.  Having this depth of knowledge lets them make better decisions at the table.  They get to play hands where they have the best chance of winning and they let the rest to play out.  In trading, only going after the trades you have the best chance of winning is a much easier way to enjoy the wins and avoid the losses, rather than going after every opportunity the same.  I like to go for the “low-hanging fruit” that gives me a high probability of success.  Doing your homework and understanding the potential reward/risk of any trade is essential to this process.  The “numbers” effect everyone the same, but what you can control is which opportunities you go after.
  • Know When to Hold Em’, Know When To Fold Em’:  A better poker player will know (usually) when they are beat, and not risk any more chips to make sure they have enough to cash in when they find themselves in a more favorable position to place a bet.  Preserving capital while exploiting opportunity is the clearest way to steady gains.  Keep your money off the table when you know you were wrong, and stay in the market despite the drawdown when you are most likely right.  This can take time to get better at, but the first place to start is choosing a stop NOT in an arbitrary distance from entry.  By using various forms of S/R and resistance as protection for your stop, you know if your stop is taken out, that the market has reversed (at least temporarily) and you should not be in a trade in that direction.  By doing that, you can have more confidence if you face some drawdown, but won’t be tempted to move your stop further out if the market actually reverses and comes to take you out.

On a similar theme Omar posted this article a couple of weeks ago & you can find it here: Are You A Trader or A Gambler?

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