Saturday, January 3, 2009

Poker is really a miniature stock market on so many levels. You can apply much of what you learn from one to the other.

One of the biggest similarities is how little your profits matter. If you make $1,000 in anything it is a big deal, but if you make $1,000 in the stock market or in a single pot it doesn’t matter. That money can come and go, anyone can make money in the markets or playing poker.

That is why I don’t look at it the same way, one great trade or one good hand can help you out, but it is about the long term. One big win does not make you the king, but rather it is about making consistent money over a longer term time frame.

Paying too much attention to 1 good trade can make you arrogant and paying too much attention to 1 bad trade can make you feel like you can’t make money. Kenny Rogers was right on the money when he said “You never count your money when you’re sitting at the table.”

Poker also teaches you a good lesson about risk management. The best poker players in the world are the ones that manage their risk; you’ll see them folding two pair if they think their beat. In fact if blinds didn’t raise so fast at the world series of poker, the game would last a lot longer because no one wants to get rid of their chips.

It is the same in the stock market, you want to go after big profits, but at the same time your capital is the lifeblood of your business. “You need money to make money”, so manage your capital very carefully. Never risk more than 2% of your portfolio on any 1 trade.

Everyone who plays poker tries to milk out as much money as they can when they know they will win. They check, trying to get other players to try to bluff them out, or they try to act like they are bluffing. They do this out of necessity. A poker player may lose 5, 10, or more hands in a row so they need to win big when they finally do win.

The same rule applies to the stock market; a stock trader may lose several trades in a row. You need to let your winners ride, so they can not only make up for your losses, but also put you in positive territory. The more you make when you are right the less often you need to be right to make a profit.

For more information about the stock market visit http://www.stocks-simplified.com

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