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Learn Stock Trading From Playing Poker
By Zheng Fang, Sat Dec 10th
Picking good stocks is only the first step to become aconsistently profitable trader. Those of you that track theperformances of stock picks I post on http://www.cisiova.com/analysis.asp know that it is impossible to determine if astock is good without a good exiting strategy. And for mosttraders, exit strategy is the hardest part. Many people say thatto trade profitably you need to develop the right mentality.Unfortunately, such winning mentality can only be developedthrough experience. However, there is a short cut to get throughthe learning curve without throwing thousands of dollars in theprocess. This short cut is playing POKER. Yes you heard me right. Apparently, playing poker has a lot ofsimilarities with investing in stocks. First of all, they bothdeal with money, uncertainties, and a keen judgment of potentialrisk and reward. In this article I will explain the similaritiesand differences between stock trading and poker. But beforeproceeding, make sure you know the rules of Texas Holdem andfluent with the terminologies. Think of stock picking as looking for good hands to play. InTexas Holdem, you can look at the two hole cards and decidewhether you can play the hand or not. Similarly, you can analyzethe stock before entering a position. Fortunately for youtraders, no one will raise pre-flop, so you just pay thecommission. Remember to exit the position you also need to paythe commission, which implies that the cost of entering aposition is two times the commission. Good poker players onlyplay good hands, so you should do thorough researches beforeentering a position. One good thing about trading is that you donot have to wait for good stocks like poker players wait forgood hands, you can find good stocks on stock picking websitesor using screeners to find them yourself.
Once
you call the blinds in poker, you get to see the flops andtwo more cards. Think of these cards as the performance of yourstock after you enter the position. In poker, the flop can makea good hand, a medium hand, or a bad hand (by helping youropponents). In trading, you can observe the potential of thestock as well, and you should objectively judge the downside andupside potential of the stock. In poker, there are times thatyou have a good hand, and your opponent have a better hand, andyou know you are beat. These are the times where your mentalitymatters the most. An experienced poker player will fold his handregardless of the amount of money he has put into the pot. As atrader, at times that you think the upside potential fails toactualize, you should sell the stock regardless of how much youhave lost. On the other hand, when a good poker player knows hehas the winning hand, despite the possibility of losing at theriver, he would bet aggressively, without fearing the smalllosing possibility. In trading, this translates to if the stockgoes up and manifests higher upside potential, you should notfear that you will lose your recent winnings. Therefore thewinning mentality is to ride when the stock is going up, andsell when the stock is losing its heat. This discipline iseasily said than done. So many times I have heard people lostall their money because they hold on to losing positions (due tohope) and sell winning positions too early (due to fear). By playing poker, you would get the chance to master youremotions, learning not to hope when you are beat, and not tofear when you are favorable to win. You want to lose small andwin big, not the opposite. Now go practice. This mentality only develops with experience. About the author:Zheng Fang is the creator of Advance Stock Pattern Scanner ofhttp://www.cisiova.com and you can find more of his articles at:http://www.cisiova.com/blogs/optimalportfolio/
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