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Poker and Trading…Some Rules Applicable to Both.

Pay Attention…and It Will Pay You. Concentrate on everything when you are playing/trading. Watch and listen; remember to do both and relate the two.

Understand When to Play Aggressively…It’s the Winning Way. Don’t be a tight or a loose player/trader; be a solid one and recognize when it is time to press your bets/positions. To attain superior returns in poker and investing over the long run, grind it out (in stocks until you are up 30%-40%, and then if you have convictions, go for a 100% year). If you can avoid losing and put together a few 100% years, you can achieve outstanding long-term investment performance.

Tells: Look For Them and You Will Find Them. Poker players and stock markets have tells — giveaway moves that are very revealing. Learn to recognize them. History is your textbook.

ESP…It’s a Jellyroll. In those rare instances when all your card knowledge and market judgment/knowledge leaves you in doubt, go with your strong feelings and not against it.

Honor: A Gambler/Trader’s Ace-in-the-Hole. A good reputation and respect from others will put you in good stead.

Be as Competitive as You Can Be. Go into a poker game and into a trade with the idea of completely destroying your opponent or scoring a major investment coup. If you win a pot or make a successful trade, nearly always play the next pot or make the next trade shortly thereafter — within reason. Although the cards and trades might break even in the long run, rushes do happen and momentum often feeds upon itself. When you earn the right to be aggressive, you should be aggressive. When one has a tremendous conviction in a poker hand or trade, you have to go for the jugular.

Art and Science…It takes Both. Both activities are more art than science — that’s why they are so difficult to master. Knowing what to do is about 10% of the game. Knowing how to do it is the other 90%.

Money Management. The same sound principles of money control apply to the business of tournament/professional poker and to successful investing. The way to build long-term returns or poker winnings is through preservation of capital and home runs.

The Important Twins of Poker/Investing, Patience and Staying Power. Come to the poker table or to the markets with enough time to stay and play for a while.

Alertness is a Key. You must stay alert at all times.

So is Discipline.

Never Let Your Mind Dwell on Personal Problems. Never play/trade when you are upset. Make a conscious and constant effort to discover any leaks in your play, and then eliminate them.

Control Your Emotions. Allowing your confidence to be shaken can turn a simple losing streak into a terrible case of going bad. Keep your emotions in check. When you lose a pot or make a poor investment decision, get up, walk around the chair or take some deep breaths. Don’t lose your poise. If a trade or poker hand does not work out, walk away from the position/hand. Be confident enough about your ability to win afterwards.

R.W. Schabacker, the financial editor of Forbes magazine, penned the following advice (warning) in 1934

No trader can ever expect to be correct in every one of his market transactions. No individual, however well he may be grounded, no matter how much experience he has had in practical market operation, can expect to be infallible. There will always be mistakes, some unwise judgments, some erroneous moves, some losses. The extent to which such losses materialize, to which they are allowed to become serious, will almost invariably determine whether the individual is to be successful in his long-range investing activities or whether such accumulated losses are finally to wreck him on the shoals of mental despair and financial tragedy.

THE TRUE TEST

It is easy enough to manage those commitments which progress smoothly and successfully to one’s anticipated goal. The true test of market success comes when the future movement is not in line with anticipated developments, when the trader is just plain wrong in his calculations, and when his investment begins to show a loss instead of a profit. If such situations are not properly handled, if one or two losing positions are allowed to get out of control, then they can wipe out a score of successful profits and leave the individual with a huge loss on balance. It is just as important-nay, even more important-to know when to dessert a bad bargain, take one’s loss and count it a day, as it is to know when to close out a successful transaction which has brought profit.

LIMITS ARE A MUST

The staggering catastrophes which ruin investors, mentally, morally, and financially, are not contingent upon the difference between a 5 percent loss limit and a 20 percent loss limit. They stem from not having established any limit at all on the possible loss. Any experienced market operator can tell you that his greatest losses have been taken by those, probably rare, instances when he substituted stubbornness for loss limitation, when he bought more of a stock which was going down, instead of selling some of it to lighten his risk, when he allowed pride of personal opinion to replace conservative faith in the cold judgment of the market place. (more…)