Interactive Investor

Five ways chess can help you buy and sell shares better

11th December 2020 15:33

Michael Kamerman from ii contributor

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Both can be intellectually stimulating, and these traits can make or break chess players and investors.

Still from The Queen’s Gambit. Picture credit: Charlie Grey/Netflix

In a chaotic year, Chess has become one of 2020’s success stories, enjoying a surge of interest, driven by the popularity of Netflix original series, The Queen’s Gambit.

Rewinding to March, this bounce in popularity may have seemed unlikely, but chess has been quietly experiencing increasing publicity in recent years, and attention from other industries. Much of this has been driven by the celebrity of Magnus Carlsen (pictured below), the chess maestro with more than 700,000 followers across Twitter and Instagram. He gained even greater fame by applying his skills to Fantasy Football, which for many months saw him ranked the top player in the world throughout the 2018-19 season.

Carlsen’s success in transferring his chess skills to a different subject is no anomaly, and many of the disciplines that chess teaches are applicable in other fields. This is particularly pertinent to investment, with successful chess players sharing many characteristics with successful investors.

So, what advantages do serial chess players have that help them to trade?

Developing and executing strategy

Going into a game of chess without a strategy is no strategy at all. You may strike lucky now and then to steal the odd win, but in the longer-term your opponents will find you out.

The similarities with trading are clear, in that the only way to ensure you sustain your success is to develop and then execute a coherent strategy. For me personally, that strategy is all about proactivity, I prefer to set the pace when playing chess, rather than be dictated to by my opponent or external factors.

Without a strategy, no matter how much short-term success you enjoy, the underlying metrics will eventually catch up with you.

Analysis and forethought

Fundamental to developing a strategy that will be effective is analysing the conditions of play, and developing the forethought to plan for events before they happen.

The best chess players aren’t thinking one or two moves ahead, they already have an endgame in mind, thus can weigh the ripples that each move will cause.

This trait can be learned, and from a trading standpoint, I always tell myself to spend more time thinking and less time doing. Nobody can predict the future, but by leaning on foresight, you can give yourself an advantage over your competitors.

Maintaining psychological balance

For all that you can analyse and use forethought, you cannot always account for a moment of inspiration from your opponent.

It is impossible to always prevent them gaining the upper hand, or executing a devastating move against you, so the key is to maintain perspective and psychological balance. To act on impulse or through emotion is rash and generally doesn’t pay off. A savvy player knows that victory is decided by the broader picture, not by short-term setbacks, and maintaining that balance is key to emerging triumphant.

Those sentiments will be very similar to anybody working in the markets this year, as the volatility and bizarre series of events that have punctuated 2020 demonstrate the folly in thinking you can predict everything.

Still from The Queen’s Gambit. Picture credit: Phil Bray/Netflix

Adaptability to act decisively

Yet while acting on impulse can get you into trouble, taking a considered approach must not come at the detriment of taking opportunities when they present themselves.

If you are looking ahead, and acting with logic and rationality, then you will see openings that you can take advantage of. At times, these will deviate from your broader, long-term strategy, but having the adaptability to capitalise on these is crucial.

This rings true in trading too, where you must be able to react to what the market is doing or telling you. To be inflexible is to cut off your options.

The mindset to learn continuously

The greatest chess players put their egos aside when they play. Games of strategy can be perilous for those who become arrogant, and often the moment you think you have learned all you can, is the moment you start to regress.

Over the course of time, a chess player needs to study and grasp new methods to play more challenging opponents. Even the most avid players require a more advanced step up to add new and strategic openings and analyse unexpected scenarios.  

Learning to make decisions in real-time based on what’s unfolding in front of you, and identifying where your theory or trading call may be wrong, is all part of the process. Unfavourable circumstances are unavoidable on the board and in markets, but those who learn how to turn this state of play to suit them will come out on top.

Since trading requires funds, a trader can test and nurture his ideas on a demo account to prevent non-essential losses. That way, new knowledge can be executed once developed without spreading your wallet thin.

Markets are uncertain, and you have to analyse, adapt and learn to roll with the punches, in exactly the way you can learn from brilliant moves your opponent might play in chess.

These underlying similarities between chess and trading have led to an alignment of financial service providers with the game of chess, and also the gameplay of grandmasters, in an effort to better communicate the value of the disciplines that can make one great in each of either or both of these fields.

 

Michael Kamerman is CEO of Skilling, proud sponsors of World Chess Champion Magnus Carlsen, and the Skilling Open, the world’s first fully online Champions Chess Tour.

Disclaimer: Skilling Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission (CySEC) under CIF license No. 357/18 (the ‘Company’). 62 Athalassas Avenue, Strovolos, CY-2012 Nicosia, Cyprus. Skilling Ltd is authorised to operate via its UK Branch by the Financial Conduct Authority ("FCA"), under Reference Number (FRN) 810951.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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