In every one of my stock market trading seminars, I ask each attendee his profession. I do this not only to break the ice but to give them confidence.
I think all of us bring something to the table that can help us to be successful in the stock market.
For example, engineers are much disciplined and are good at following rule-based systems. When they follow a rule-based back-tested system, this can help control emotional behavior. Emotions play a large part in financial markets.
Medical doctors are scientific and base their decisions on logic and evidence. Successful investors weigh the facts and a doctor’s thought process will give him an edge over those who make decisions based on emotions.
The best traders are able to separate their emotions from the trading process.
Accountants bring the edge of risk management to the table. The job of an accountant is to manage the risk of his clients. Risk management, in my opinion, is the essence of successful trading.
Even a housewife who follows a successful recipe for a delicious dish can apply a step-by-step trading recipe to the stock market.
In our courses, we share recipes for short-term trading as well as long-term investing.
We have a broad spectrum of professions represented on our attendance roster. Some are accountants, teachers, pilots, engineers, medical doctors, salesmen, news writers, lawyers, and business owners. Even a politician and a fashion model attended.
What this proves is that making money in the stock market appeals to almost everyone.
Scientific studies have found that pilots and professional poker players are at the top of the list of successful traders.
By the nature of their job, pilots must have emotional control and be ready at a moment’s notice for the unexpected to happen. How the pilot reacts to danger can mean the difference between life and death. In markets, you call it profit or loss.
Pilots are also trained to follow a checklist.
Professional poker players also make great traders. They, like pilots, must constantly access probability in an environment of uncertainty. In this environment, they must have complete emotional control. There are many similarities between poker and trading.
The rules to be a successful poker player are the same rules to be a successful trader. For example, Rule 89: Understand what happens with marginal hands in poker.
To understand why it is important to limit yourself to playing good hands, it is helpful to visualize what happens statistically when we play the marginal ones. It is not that these hands all lose. Not by a long shot. It is more a case of statistical averages — over a lifetime, we may win RM590, 000 with them and lose RM620, 000. It’s a long-term gradual seepage, in other words, a leak in our game. If we visualize it this way, it might help us in seeing the danger that playing marginal hands represents.
How does this apply to trading or investing?
Good trades and investments are supported by strong fundamentals, good chart patterns, and volume and high odds for profit versus risk.
A marginal trade could be a crowd following trade with more risk on the downside versus profit potential on the upside. A marginal trade might be a share hyped by the media or shares heavily tipped by remises and Joe Public.
Once a trade becomes crowded, the risk is high that it is a marginal trade. By blending the life lessons of a time honored spiritual practice with the strategy of poker, you can create a powerful approach to successful trading. In The Tao of Poker, poker player Larry Phillips offers 280 rules to bring you to new levels of achievement just when and where you need them most.
Some of his rules can applied in your trading n investing business:
- Once you commit to a hand, play it strong. (Average up your winner.)
- Don’t throw good money after bad. (Never average down a losing position.)
- If you think you are beat, get out. (Cut your losses quickly.)
- Take the long view. (Applies to investors.)
I had absolutely no idea how Larry Phillips would be able to link up Taoism and poker. From what I recalled from reading Lao Tzu, I just couldn’t make the connection. As it turns out, there really is no connection. The Tao of Poker has essentially nothing to do with Taoism. That doesn’t make it a bad book, but those who might be looking for the connection stated in the title have been forewarned.