There has been a lot of interest around day trading lately. In fact, trading firm Citadel Securities notes that the individual investor’s share of total trading volume doubled from 2019 to 2020. This rise in day trading activity is due to the reduced fees for trades, increased access to investment technology, and the prevalence of data related to various securities.
However, finding success with day trading is not as easy as one may think. Day traders rely on small and large rapid price changes in order to make money, and no newbie trader can easily adapt to its fast-paced market. In addition, the euphoric highs and catastrophic lows of the day trading market are not for the faint of heart. For these reasons, day trading is more akin to a gambling activity like poker than it is to investing.
That being said, let’s discuss why poker players have a much better chance of becoming successful day traders than other professions.
They know how to manage their risk
Poker players know that what they’re getting into has its fair share of risks. After all, countless stories have been told of people making a ton of money, and losing it all, in one sitting. In order to avoid a losing streak and victoriously walk away from the table, poker players need to calculate their odds and make the correct mathematical decisions. This means assessing your chances of winning the pot and steering clear of making calls that are not at the right price.
Day traders should also develop a good grasp of managing their risk. Aside from only using funds that they can afford to lose, day traders should employ tools and strategies that allow them to see if a particular trade is worth their while. And because day traders tend to make a few hundred trades per day, it is important for them to consistently make the right decisions in order to minimize their losses.
They understand the importance of folding
Poker players know that some of the battle is actually walking away from a hand. This is also known as folding and is done by poker players who recognize that they have a weaker hand than their opponent/s. It is often an integral part of every professional poker player’s strategy.
The equivalent of folding in day trading is exiting a trade. Because day traders make money by making multiple trades per day, it is important for them to realize the early signs of a losing trade. To successfully pull this off, day traders need to closely observe price action, trend changes, and any indication of a large-scale reversal.
They know how to be decisive
Poker requires individuals to make important decisions without having the full picture. Because there’s no way for them to know the cards in their opponent’s hands or the cards that are about to be laid on the table, they should make quick and firm decisions — whether it’s calling, folding, betting, or raising. In fact, a startup co-founder notes that because there are a lot of uncertain elements in poker, players need to be confident in what they know and what their assets are.
The same is also true in day trading. Stock prices, the direction of interest rates, and global news are all uncertain information that greatly affects how well a trade will perform. Despite having access to tools that can analyze the aforementioned information, day traders have simply no way of accurately forecasting the outcome of their trades. For this reason, day traders should know how to act quickly and without hesitation.
Poker traders who want to cross into day trading will no doubt have an easier time compared to an absolute beginner. If you want to expand your trading knowledge and find more success as a day trader, do check out our day trading boot camp.