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How Chess Can Improve your Trading Skills

By  +Follow December 10, 2013 6:00AM

What do chess and trading have in common? In both, you cannot predict the outcome of each and every move. Thus, while you may know all the rules of the game, and have your next move perfectly planned, you do not know how your opponent will move against you.

Forex traders who are good at chess can improve their trading skills by applying their chess-playing skills. And professional, serious traders often look for “non-trading” methods that will help them increase profits and create an edge. While chess may seem like merely a game with no relevance to trading, chess can improve your trading skills and bring you more consistent profits.

Reason #1: Chess Helps You Adapt to the Unknown

Chess, along with other strategy games that focus on decision making, can help traders learn to deal with uncertainty. You learn to understand and cope with the fact that despite having a 50 percent chance of being right, that 50 percent can creep up and hurt a perfect play setup.

In Forex trading, that 50 percent can be anything from economic change to unforeseen political news. Chess players know they cannot control their opponent’s move, all they can do is react accordingly. This is very similar to Forex traders who cannot control the market; they can only make decisions based on what is happening in it.

Thus each decision is loaded with a great deal of uncertainty, and each move can go either way. A trader can have a string of great trades, but they can also see a series of losses.  A trader, like a chess player, needs to be able to handle these losses without losing focus on the game

Chess skills emphasize strategic intelligence. Good chess players search for their own weaknesses in their decision making and chess moves; hence, it makes them a good chess player. As a good trader, you have to constantly be looking for instances where your theory or trading ideas may be wrong.

Reason #2: Chess Teaches You That it’s All About End

Playing chess can also help with focus. It takes a great amount of focus to win chess games because it is not just the move you make but the entire process of the decision made that needs to be considered. Forex trading is greatly similar in this respect. It’s not just about trading currency, but learning to consider each valuable step in making the trade.

With each trade a series of decisions has to be made. In order to ensure that these decisions are made effectively, so you increase your chances of success, you need to focus on the entire trading process. Traders who are skilled in strategy games like chess develop strong focusing skills. They learn to stay in the game and look at it as a whole and not just individual chess pieces. They focus on how their opponent is playing as well as themselves. In Forex, your opponent is the market, and staying focused on the market allows you to better navigate and make decisions within it.

#3: Chess Improves Decision Making

A good chess player is analytical, and understands that with each step the field changes, and he needs to continuously reassess his positions, so he can play opportunistically.

Each step presents him with new knowledge that he uses to determine his next move. Successful Forex traders are no different from this. They are critical, analytical, and open-minded about each decision they must make in the market. What’s more, they are able to think ahead.

Forex, like chess, requires that you are steps ahead of your opponent. Now, with the market being an uncertain entity this is easier said than done, but a good Forex trader makes his moves with a predisposition for future developments. He watches the market carefully not just to determine where it is, but where it goes.

This is like a chess player predicting his opponent’s future moves. While it is impossible to be accurate all the time, making decisions with the future in mind helps trader’s plan for trades when the market is not in their favor.

A trader who enjoys and plays chess, can bring these skills to the Forex field. Chess can improve a trader's decision making skills, focusing level, and emotional managing skills.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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By  +Follow December 10, 2013 6:00AM



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