In Forex Trading, Do Chess Players Have an Edge?

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There’s often a lot of talk about the correlation of strategy games, such as chess, with forex trading strategy, and there’s a lot of truth to it. The ability to pick up on patterns is highly advantageous in both scenarios, as is a deep understanding of probability and statistics. There’s also so much more to it.

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By examining the parallels between these domains, we can identify the inherent strategic thinking and decision-making skills that chess players possess, which may provide them with an edge in the world of forex trading.

Wit and strategy

Forex trading and chess are both essentially battles of wit and strategy, with the winner being the one who outmaneuvers their opponents to achieve victory. Whether it’s making moves to control the board, or making moves in anticipation of market movements, the ability to adapt to changing circumstances and maintain a long-term strategy is a common thread that links these two competitive domains. This is exactly where the element of pattern recognition comes in.

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In chess, the players develop their ability to identify common patterns on the board and capitalize on them to gain an advantage over their opponent. This directly ties in with forex, as recognizing patterns in price movements can be a key to predicting future market trends.

As Winsor Hoang, founder and CEO of CTS Forex, wrote on LifeHealth.com, “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.”

Risk management

In the case of both chess and forex, each move presents its own set of risks and rewards, thereby making risk management a fundamental aspect of the process. Both chess players and forex traders must develop a keen sense of risk management to protect their capital and preserve their chances of success.

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A chess player's ability to assess the potential pitfalls of their moves and make calculated decisions based on that assessment may provide them with an edge when managing risk in the forex market. It’s hardly a stretch to say that traders approach forex as they would chess in the sense that they look at the “game” as a whole and not just individual moves. They play the long game while concurrently adapting to the unknown.

Discipline, patience and emotional control

There isn’t a moment in either chess or forex that calls for impulsive moves. If anything, moves that appear to have been made in an instant actually have a long trajectory of thought behind them.

This touches on a point I made earlier — in forex, the focus needs to be placed on the entire trading process, not just a single move. It requires a great amount of discipline and patience for forex traders to stick to their trading plan to wait for the right opportunities to present themselves before pouncing. The management of emotions is crucial in both of these areas, as they can cloud judgment and lead to poor decisions in chess and jeopardize trading strategy and capital in forex.

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At the end of the day, chess players who choose to venture into the world of forex trading may find that the skills they have honed on the chessboard provide them with an upper hand in the game of kings and markets — and the same applies vice versa.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Justin’s work has appeared in major publications including Entrepreneur, Finance Magnates and Money Show. Justin has expertise in trading, personal finance and digital marketing. He holds a Commerce degree with honours and Master's in Marketing from Monash University. Justin is the CEO of the digital agency Innovate Online, which he founded 11 years ago. The agency provides direct marketing solutions to some of the largest globally listed companies, and he also assists with small-business start-ups. Previously, he worked for one of the largest advertising agencies with listed financial institutions as clients from ANZ bank to NIB health insurance. He also worked in the UK as marketing manager for a health and safety firm and before that at Federal Highway Administration (VicRoads) in the finance division. He also co-founded the finance website Compare Forex Brokers, which publishes reviews about brokerages to help traders reduce trading fees. Within the US, the site focuses on helping traders select a CFTC-regulated broker based on spreads and trading software features.