The uncanny resemblance between stock market trading and Poker

The stock market is a live beast; its story continues to unfold without a definite end. Every new information obtained provides a new, more profound understanding of a company. Therefore, Bayesian probability (an interpretation of probability) is at play regarding the stock market. If one draws a parallel, poker is a game where one is dealt two (to four) private cards that tell you your initial odds. When the community cards are added to the mix, one by one (flop, turn, river), this new information turns the probability on its head.

Both the stock market and poker are an exciting interplay between skill and luck. The outcome of individual hands/trades, and even short-run outcomes, are more influenced by luck. But over the long run, the player/trader's skill will determine the results. So the more often a player/trader can apply their skill (i.e., the more times they play/trade using their strategy), the more their results correlate with their skill.

In statistical studies, it has been shown that games with more scoring opportunities are more influenced by skill, and those with fewer scoring opportunities are more influenced by luck. Therefore, there are, on average, more upsets (unexpected results) in soccer tournaments than in tennis championships.

And it's the same with poker and stock trading. A skilled poker player will aim to play as many games as possible to realize his edge. Many poker professionals now prefer an online setting, allowing them to play multiple tables simultaneously. For stock market trading, the best way to realize an edge is to have a frequently traded strategy with a short holding period and a high win rate. Long-term investing strategies that enter and exit the market infrequently will be more influenced by luck and more exposed to market risk.

In fact, Moneycontrol, one of India’s leading business and financial platforms under Network18, has joined hands with Spartan Poker, the country’s leading online gaming platform, to announce ‘Poker for People’. This one-of-a-kind competition sees Moneycontrol introduce an online poker championship to its users. The tournament, with a prize pool of Rs 1 crore, will offer poker enthusiasts a chance to go all in. With freeroll qualifiers between the 25th of November and the 17th of December (no cash involved here) culminating in the finale on the 18th of December, you can commit to winning big.

In preparation, here are five strategies that will help you understand how trading and playing poker are similar.

Start slow
If you are new to the stock market, experts will advise you to read thoroughly about investing in stocks. You will also be advised to put only some of your eggs in one basket and invest the money as per risk appetite and short, mid, and long-term goals. Similarly, if you are a beginner in poker, take the time to study the game, skill yourself, start with low-level stakes, take calculated risks, and devise a strategy that will help you come out on top by the end of it.

Calculate your risks and rewards
You are advised to refrain from making random investments in the stock market. You take a calculated risk, assess the company, check potential profits and losses, etc. It is also prudent to determine the best yields and do the math. Similarly, poker commands the same level of attention and thought process. You can’t play your cards randomly; you must understand the situation, see the win percentage, and decide whether you want to fold or play further.

In it for the long term
As most industry experts will advise, stock market investors should refrain from getting buoyed by gyrating markets and should set their sights on the long-term benefits. They should beat the pressure and wait for the right moment. In poker, too, you will feel the pressure, but that doesn’t mean you should fold. There is money at stake, so observe the game, deal with jumps and handle pressure skillfully. Remember the tortoise and the hare story? There’s a lesson to be learned: Patience will determine your success.

Avoid emulating others
What suits your neighbor may not necessarily suit you. In stock market investing, you should refrain from copying anyone and instead invest as per your goal and finances. You should create your portfolio and re-balance it from time to time. The same applies to poker. Avoid imitating your opponent, even if they are a great player. Winners can lose too. It’s essential to focus on your own game. Apply your skills, experience, past hands, etc., while playing poker, read your opponent’s body language and do what is favorable to you.

Eye on the prize, always
Sometimes, a company will do great, and you will decide to invest in it. What if it posts losses in the next quarter? What if it doesn’t give you the desired returns you were hoping for? On poker grounds, too, don’t jump the gun just yet. Poker is a game of skill and understanding; jumping tables won’t help you. Play the game skillfully.

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“This game involves an element of financial risk, and may be addictive. Please play responsibly and at your own risk.”

Moneycontrol Journalists were not involved in the creation of the article.