Talking about Poker and Stock Trading in the same breath may seem a bit odd in the beginning. For the uninitiated, the terms Poker and Stock Trading may seem poles apart; however, when one digs deeper similar patterns seem to emerge. There are times when Stock traders find it hard to distinguish investing from gambling; while at the same time seasoned Poker players consider Poker a sound financial investment than gambling.
It is uncanny how the fundamentals of Poker have so many parallels with Stock Trading. The underlying goal of both is to build capital. The following points will shed more light on the parallels:
1. Games of Probability
Poker is a game of probabilities. Apart from numerous other factors, one needs to calculate the odds of the next card and evaluate whether it’s going to tilt the odds in your favor or not.
Similarly, in the Stock market, after due research one needs to calculate the
probability of how a particular stock is going to perform and how it can benefit you.
Having a better hand may tilt the odds, but there & always a chance that the better hand will lose if unfavorable cards are dealt with later. This means that unfortunately, you can play your hand perfectly and still lose. Similarly, one can research a Stock meticulously and make the correct decision to invest, but unforeseen events can happen and cause losses.
2. Research and Knowledge
Before trading Stock or playing Poker, it is important to put in the research and devote enough time to gain knowledge in a particular field. It is absolutely crucial before getting invested in the pot or a Stock.
3. Relying on Luck or Hope
Relying on luck can destroy a Poker player as well as a Stock investor. Hoping for that improbable card to come or the Stock to suddenly skyrocket isn’t wise. It can definitely happen, but basing an investment on pure luck isn’t prudent.
Similarly, continuing to play a bad hand or staying in a bad investment out of hope and not because of calculated probabilities isn’t rational either.
4. Importance of Bankroll Management
Poker isn’t just about playing each individual hand well. It’s about building a portfolio with enough contingencies for bad runs and bad luck. Good Poker players seldom go all-in despite having favoring odds. Similarly, good investors diversify their portfolios even if they are confident about a particular Stock.
5. Patience is a Virtue
Good Poker players know when to fold hands. They don’t take the game
personally or let ego creep into it. The purpose of Poker is to make the most
money, not win the most number of hands. Similarly, good investors are patient and disciplined. In Stock Trading, success is about the gradual accumulation of wealth over a period of time, not making a quick buck.
Patience, however, doesn’t mean sitting idle. It’s about recognizing opportunities and being ready for it.
6. Controlling emotions
‘Going on Tilt’ is the expression used in Poker for letting emotions interfere with good strategy leading to irrational play. Likewise, investors who go on ‘tilt’ are also susceptible to their own emotions. A bad experience must never lead to further bad decisions. The best course of action is to sit out a few hands or stop trading temporarily.
Conversely, Stock traders as well as Poker players may become overconfident after a good run and may end up risking more money and making wrong decisions.
7. Recognizing the Opportune Moment
Recognizing when you have the ‘nuts’ or the best possible hand, or understanding the odds of potentially getting to the best hand is vital to a Poker player. Likewise, recognize when you having found a winning Stock is pivotal to a Stock Trader.
One should act accordingly and swiftly when the opportune moment presents itself.
8. Living in Hindsight
All Poker players fold hands that end up as the best hands. Lamenting over these “what-ifs” can be detrimental for a Poker player as well as a Stock trader. Thinking about what " could have" been encourages one to take a risk next time in order to make up for the notional loss. Cards and Stocks alike, have no memory.
If a Stock trader misses an opportunity to invest in Stocks which subsequently soar; there is no reason to alter the Trading strategy or feel bad about the notional loss.
9. Making decisions based on Incomplete Information
Poker players are required to make betting decisions based on incomplete
information. They don’t know their opponents’ hands or the community cards, yet they must decide. Similarly, Stock Trading also requires decision-making in the face of incomplete information. The key to success is to evaluate the most probable outcome and base smart decisions on it.
10. Minimize Losses and Maximize Gains
A prudent investor is careful with his money, but when he recognizes an
opportunity within his scope of knowledge, he bets heavily and makes a fortune. This can be likened to a tight-aggressive player in Poker.
Sometimes, one will be dealt with a ‘bad beat’, but in the long run, the player who makes the best-calculated moves will come out ahead.
It isn’t surprising that a lot of professional Poker players trade stock. Similarly, a lot of Stock traders play Poker too. This might seem like a coincidence… you decide!
Thank You For Reading The Article.
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