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Parallels Between Poker and Trading


It doesn't matter if you are trading an oil stock, a tech stock, or a financial stock; it's all about the charts and the approach you take.

When I speak to audiences about my approach to trading, I like to use a blackjack analogy. When you're trading, you always have to have an edge. You can't simply make gambles, but rather you must repeatedly put yourself in favorable risk-reward situations. While you can never predict a stock's or market's movement with certainty, you can limit yourself to the best set-ups.

In blackjack, you are dealt a hand and you have no choice but to play it. In technical trading, you get to pick and choose your hands. How great would it be if you could go into the casino, sit at the black jack table, get dealt 10-4, and say to the dealer, "No thanks, I'll wait to see the next hand." On the flipside, if the dealer deals you a 5-6 against his own 10-4, you can choose how much money to put on the line and whether or not to double down the odds. That's obviously not how blackjack works, because if that were the case the house wouldn't always win.

Texas Hold 'Em Poker, I feel, incorporates many elements of trading. Any great poker player will tell you it's more about the people than the cards. A professional poker player could sit at a table of amateurs and likely win blind (without even looking at his cards). In the market, it is the same in some senses. It doesn't matter if you are trading an oil stock, a tech stock, or a financial stock; it's all about the charts and the approach you take. I rely on routine, discipline, money management, and confidence. Charts and price movement represent the emotions of the herd, and it is a trader's job to analyze those emotions and position themselves correctly. For example, when sentiment gets overly bearish like we saw at the beginning of this week, a smart trader would position himself for a powerful oversold bounce, like we saw on Tuesday. Even more recently, today, traders were able to identify relative strength in tech, make that their focus, and were rewarded with a big late-afternoon move.

That isn't to say that you don't get beat badly sometimes. Today, for example, many traders elected to take tech stocks into the close, after the Nasdaq showed an aforementioned relative strength all day. Then, the Greece austerity agreement boosted stocks late in the day. After the close, Oracle Corporation (ORCL) released lackluster guidance, resulting in a slight drop in tech. Sometimes the things that are out of your control go against you. Sometimes pocket deuces beat pocket aces, when a 2 is laid down on the river. But, in the long run, the player who makes the best calculated moves will come out ahead.

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Positions in SPY, AAPL, BIDU, SINA, CRM, VMW

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