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Parallels Between Poker and Trading

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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.

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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

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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