Looking to sharpen your trading and investing skills? Start gambling.
No, your eyes did not play a trick on you- the article title is accurate.
However, perhaps “gambling” isn’t the most accurate term to use. Instead, to be more precise, look to participate in any “game” that involves game theory, such as poker, which are games that require you to beat your opponents using skill instead of luck.
Poker is an excellent example because it literally rewards those players who leverage game theory to the maximum. In poker, you’re not just playing against yourself; you’re playing against others who are all looking for the same outcome, that is, to finish as a winner.
And in order to do so, you have to use game theory. At this point, you might be wondering: what is game theory, and how would knowing game theory help me sharpen my poker, and consequently, my trading/investing skills?
Game Theory: The Secret to Winning
Game theory, in a nutshell, is the idea of maximizing your chances of success by factoring in the actions of others. The catch, however, is that the others are also looking to maximize their chances of success by including you into their strategic plans.
You might not realize it, but virtually every decision you make during your day involves game theory. When you’re driving and deciding whether to take a certain route or not, you’re factoring in the traffic conditions of all the other drivers. Their actions are impacting your decision; in return, your action will impact the decisions of others. The more you think about it, the more you will realize that your life is just one big, giant game, dependent upon what everyone around you is doing.
In poker, when one player wins, another loses. It’s a zero-sum game, one in which the best poker players are those who are able to control their emotions the best and look to consistently make small returns on their “investments”. It’s no coincidence that year after year, the best poker players in the world continue to do well and stay ahead of the curve.
Controlling your emotions; controlling your risk appetite; understanding your competition (the market) and crowd psychology (market psychology). These terms can equally be used to describe poker as it can be used to describe trading.
So why is playing poker a good idea to sharpen your trading decisions? If you’re looking for a fun and creative way to cultivate your risk appetite, control your emotions, and find ways to gain an edge over your competition by leveraging human behavior to your advantage- than games like poker will do that for you. Don’t get me wrong: when I say poker, I am not talking about games involving pure luck. Instead, games that involve math (the best poker players in the world are great mathematicians), where odds are calculated to decide whether a hand should be played or not, goes hand in hand (pun intended) with trading. In trading, those who are able to understand market psychology, figure out what’s a good price to place a trade at by analyzing price trends, fundamentals of a company, and other numerical indicators are the ones that have an edge over the competition.
And so the next time someone chastises you and says”trading and investing and gambling are all one and the same”, shake his/her hand and smile.
Who knew that gambling could be a blessing in disguise?