Picking good stocks is only step one to become a consistently profit-making trader. And for most traders, exit technique is the hardest part. Many individuals say that to trade advantageously you want to develop the right mindset. Unfortunately, such winning mindset can only ever be developed through experience. But there is a short cut to get through the learning curve without throwing thousands of bucks in the process. This short cut is playing POKER.
Yes you heard me right. Seemingly, playing poker has a lot of likenesses with making an investment in stocks. First of all, both deal with cash, uncertainties, and an avid judgment of potential risk and reward. In this post I'm going to explain the likenesses and differences between stock dealing and poker. But before going on, make sure you know the rules of Texas Hold'em and smooth with the terminologies.
Think about stock picking as looking for good hands to play. In Texas Hold 'em, you can look at the two hole cards and choose whether you can play the hand or not. In a similar fashion, you can analyze the stock before entering a position. Happily for you traders, no one will raise pre-flop, so you simply pay the commission. Don't forget to exit the position you also have to pay the commission, which implies that the price of entering a position is two times the commission. Good poker players only play good hands, so you should do comprehensive researches before entering a position. One great point about trading is that you don't need to wait for good stocks like poker players wait for good hands, you can find good stocks on stock picking internet sites or using screeners to find them yourself.
When you call the blinds in poker, you get to see the flops and two more cards. Think of these cards as the performance of your stock after you enter the position. In poker, the flop can make an excellent hand, a medium hand, or a horrible hand (by helping your opponents). In trading, you can observe the potentiality of the stock also , and you must objectively judge the downside and upside potential of the stock. In poker, there are times that you've a good hand, and your opponent have a better hand, and you know you are beat. These are the times where your mentality matters the most. A professional poker player will fold his hand without regard for the sum of money he has put into the pot. As a trader, on occasions that you suspect the upside potential fails to effectuate, you must sell the stock without regard for how much you have lost. On the other hand, when a good poker player knows he's got the winning hand, regardless of the possibility of losing at the stream, he would bet assertively, without fearing the tiny losing possibility. In trading, this translates to if the stock goes up and manifests higher upside potential, you shouldn't fear that you're going to lose your fresh prize. Therefore the winning mindset is to ride when the stock is going up, and sell when the stock is losing its heat. This discipline is easily claimed than done. So many times I've been told folk lost all of their cash because they cling on to losing positions (due to pray) and sell winning positions too early (due to be afraid of).
By playing poker, you would get the opportunity to take charge of your emotions, learning not to hope when you're beat, and not to be afraid of when you are favourable to win. You would like to lose tiny and win massive, not the opposite.
Now go practice. This mentality only develops with experience.
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