I love Poker not because I am an addicted gambler but
because Stock Trading and Poker are pretty much alike. Poker betting terms like
"call", "check", "raise", and "fold"
are equivalent to stock trading terms as "bid", "hold",
"jockey", and "cut loss".
It is so alike that I practice my emotional control and derive some of
my trading strategies through the lessons learned from playing it. But that is
going ahead of the story.
Once a month, my six friends and
I gather to play poker - probably the most intelligent and exciting card game
ever invented. Two are lawyers who are partners in their own respective firms,
one is a managing director of the shared services arm of the world's leading
chocolatier, another is an extraordinary salesman of electric generators who
counts the Manila Cathedral, the top 3 banks, and El Nido resorts as clients,
the other works for the BIR, and the sixth is the wife of one of the lawyers
who is completing her master's degree at the State University. And then there
is me - banker, philanthropist, playboy (joke only), turned stock trader. One
of these players is a certified poker master who has already won a championship
game at a poker club somewhere in the Metro. But that is not me. I am referring
to one of the lawyers.
While we are the best of friends,
we are all merciless combatants at the poker table. While that may be the case,
we all leave and call the night as better friends savouring yet another opportunity
at enjoying each other's company and "cutting each other's throat"
and, of course, the winnings that come with it. To the losers, there is always
the hope of winning in the next encounter and that hope never fades despite the
grieving protestations of our better and bitter halves.
One of the “benefits” I learned
from playing poker is mind reading which is the ability to detect the strength
or weakness of the players' hands through body language, verbal communication,
eye movements, facial expressions, as well as betting patterns. In stock
trading, it is like having that unique ability to read market sentiments from
news about global and domestic economic affairs, corporate disclosures, chart
patterns, volume traded, and price action, among others. It is a continuing
lesson because serious poker players have the ability to maintain poker faces
as well as confound you with bluffs. In the same manner that reading market
sentiments can be made difficult when domestic and global events run in
opposite directions, and when the market is inundated by rumours and gossips,
false information, padded volumes, and price manipulations.
In poker, if you bet more often
chances are that you are going to lose. Betting frequency does not determine more
positive outcome. What determine positive outcome is the number of outs your
hand has versus the number of outs the other guys have. The same can be said in
stock trading in even greater magnitude. The more frequent you trade, the more
you are going to lose. The reason I say "in even greater magnitude"
is because in stock trading you are actually trading with not six or nine individuals,
as in the case with Poker, but with thousands or even millions of traders
across the world. If you have been watching World Poker Tour (WPT), the players
normally do not bet so often even laying down cards that for me have good
chances of winning. Now tell me, if this is not the case.
One of the questions often asked
is when to buy stocks or raise a position in a particular stock? That is the
same question you face in Poker, "When do you call or raise the bet?"
In Poker, the answer is the number of outs as above-stated. In stock trading,
you buy stocks or raise your position in a particular stock if you have a high probability trade. A high
probability trade happens when all your selected indicators confirm each other
and there is a positive disclosure about the company. This is regardless of
whether the overall market sentiment is up or down. Of course, this is
discounting bluffs in poker or hype and dump in trading or the opposite of it.
I learned a valuable lesson from
our Poker Master when he said that if you want to win big in Poker knowing what
you have is far lesser in importance than knowing what others have. That is
very true indeed because you are not playing by yourself but against everybody
else in the table. When I was still new in this game, I always committed this
mistake of thinking only about my cards and disregarding what my opponents
have. He said to me that studying betting behaviours and patterns as the cards are
shown on the flop, turn and river will give you indication about what the
others have. In stock trading, it will certainly pay dividends if you keenly
watch the price action and volumes of bids and ask. If you notice buying or
selling pressures always try to learn what is going on from corporate
disclosures or from your brokers if you can.
I can go on and on but I will
stop with this last lesson – “Learn to
cut your losses”. When I was new in both Poker and Stock Trading, I played and traded with a stubborn determination not to fold or cut my losses even when
it was already apparent that the tide was going against my favour. My pride in
not admitting I was wrong had the better part of me. I kept telling myself that
the right card would show up in the river or that the price trend would soon reverse. But it did not . . . until it was too late. Cutting losses is a bitter pill to
shallow but this will save you a lot of trouble down the road. It is foolhardy
to consider paper losses as just only on paper. Believe me, a paper loss
is as real as it can get.
