Wall Street Craps – 2012 Global Ebook Finance Award-Winner

IGNORE OTHER PLAYERS & THE DEALERS: Don’t get distracted by what other people say or do concerning the stock market. Combining different strategies will only cloud your thinking and prevent you from taking correct decisive actions. Remember that there will always be a well-qualified expert with convincing advice to take almost any position on the future course of the stock market.

The obvious truth is that no one really knows that outcome. As wise investors, we must not be fooled by the convictions or credentials of any expert and their opinions. What matters in the area of stock market advice is only the accuracy of the thinking and wisdom of the philosophy behind it.

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Comment: In terms of market analysis, you want to get to the point where you have enough experience working with the key internal indicators that you can trust your own decisions. Understand that when you are in an emotional state of uncertainty, you will be inclined to be swayed by what other people think and do. However, the one place where other people’s opinions matter is when you see a consistent pattern to cause you to look at them as “contrary indicators.”

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“It’s not the bulls and bears you need to avoid — it’s the bum steers.”

Chuck Hillis ` Portfolio Manager at Hillis Partnership

challenge:

1. a demanding task that calls for extraordinary effort, intense concentration, and refined skill in order to succeed.
2. an opportunity that tests one’s ability to perform well under pressure.
3. the essential gift that games of competition provides enlightened players, including those savvy independent investors who choose to play Wall Street Craps for fun and profit.

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“To the extent that a person is obsessed with the possession and accumulation of money to the exclusion of how money is acquired – when the satisfaction in having money submerges the satisfaction derived from the process of making money – then it can be said that the person has an unhealthy attachment to money.”

Herb Goldberg and Robert T. Lewis ~ Authors of Money Madness

sidelines:

1. a space where participants of a competitive sport remain apart from the field of play.
2. a location outside the limits of a playing field or court which is occupied by spectators and/or inactive players.
3. a neutral position where investors choose to observe rather than participate in the current action of the stock market.

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“It’s important to distinguish between respect for the market and fear of the market. While it’s essential to respect the market to assure preservation of capital, you can’t win if you’re fearful of losing. Fear will keep you from making correct decisions.”

Howard Seidler ~ Professional trader and money manager

capital preservation:

1. a conservative investment objective of avoiding asset value loss.
2. an investment goal in which protecting the investor’s principle from loss is the primary concern.
3. a wise and prudent reason for selling underperforming stock market positions when the disempowering emotions of hope and greed are more likely to cause amateur investors to procrastinate and do nothing.

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“Perhaps my number one rule is: Don’t try to make a profit on a bad trade, just try to find the best place to get out.”

Linda Bradford Raschke ~ professional stock trader

PLAY BIGGER WITH THE HOUSE’S MONEY: Continue to play small until you have gained enough experience to make consistent money. Don’t play with bigger sums of money unless you have accumulated a tall stack of the house’s money to bet with confidence.

One of the biggest mistakes that amateur stock players can make is to increase the size of their bets in order to make up for prior losses and lost time. On the other hand, it’s also a strategic mistake to keep betting small when you’re way ahead in the game. So the savvy thing to do is to increase the size of your bets when, and only when, you have been on an extended winning streak.

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Comment: What is true in the game of casino craps is also true with stock market trading: you must send out the troops when you get on a roll. And this is done with the house’s money and not yours. You’ll find that with the house’s money (your profits), you’ll be able to bet or trade without the same degree of fear of loss as you would have your own scarce funds. So if your intention is to win big, then you must bet big. And one of the conditions for doing this is when you have the house’s money to play with.

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“The happiest time in any man’s life is when he is red-hot pursuit of a dollar with a reasonable prospect of overtaking it.”

Henry Wheeler Shaw

Many people treat the stock market more like a hobby than a business. This is perfectly OK as long as they’re playing with small amounts of money and don’t expect much in return. However, there are others who trade with serious money for consistent returns at calculated risks. The wiser approach for this latter group of investors would be to treat their stock market activities more like a business and less on the basis of fun and games.

It’s often said that “patience is a virtue” and this is certainly true when it comes to trading the stock market. That’s because the market moves in a certain rhythm, where it ebbs and flows, chews up time, and sets itself up for the next important move. Patient investors fully understand that they must pick their spots wisely and avoid the mistake of trading aggressively at unnecessary high risk. At the same time, investors must not succumb to excessive or persistent fear that causes them to miss out on good trading opportunities.

Savvy investors don’t try to force the stock market to make money for them with the inner craving for “action.” Those who do give into this craving fail to recognize that the market operates on its own time table – oscillating from undervalued to overvalued in erratic movements. Therefore, the need for action actually serves as a distraction, which causes a person to play their hand incorrectly. The stock market doesn’t really care about your personal situation, even though you may need money to make house payments, pay off debts, or meet the special demands of your family,

The reality is that if you’re impatient, crave action, and trade all of the time, you’re destined to lose. It’s true that it may be appropriate to stay in the market for a majority of the time with a part of your assets in investment grade, blue chip, dividend-paying, low volatility securities. Yet, it’s not wise to be fully invested at all times in the more speculative trading vehicles, those that comprise the play money portion of your asset allocation strategy.

But overall, a wise stock-market investor should treat their time away from the action in large cash positions as a constructive period. This is a time to reinvigorate your spirit, reassess past actions, refine your trading system, and reposition your asset allocation plan, as needed. Without a healthy break on the sidelines, an investor simply may not be ready to play the stock market at a high level when it’s time to get back into the game.

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“A successful trader is rational, analytical, able to control emotions, practical, and profit oriented.”

Monroe Trout

DON’T JINX YOURSELF: Don’t brag about your gains, and don’t cry about your losses or missed opportunities. Instead, maintain your mental and emotional edge by wisely choosing to be grateful for your successes and responsible for your failures.

For many investors, the real culprit that undermines their long-term success is the absence of key positive character traits. One such trait is that of modesty, which equates to shutting off the temptation to boast about your winnings when good fortune comes your way. Boasting or bragging about your accomplishments is simply misdirecting your emotions, and it’s a behavior that can come back to haunt you in a different time or context.

Beyond modesty, another equally important character trait is that of high self-esteem; in this context, I’m referring to not abusing yourself for making occasional mistakes in this error-prone game. Learn to say only good things about yourself and the way that you’re going about your business in the stock market. The key to your long-term investing success is in developing an enlightened mindset; this will support you in becoming a consistent winner in your overall approach to trading, investing, money management, and life.

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Comment: In the game of Craps, the concept of jinxing yourself is a very real element to playing the game. For instance, you’ll never hear a player say, “Please don’t roll a seven right now!” So does the same thing happen in stock investing? I guess it does because you’ll hear of investors who swear that a stock goes up until they buy it. Whether you believe that jinxing or karma is real, I think it is wise to play on the safe and classy side of things and refrain from bragging about your successes and crying about your failures.

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“Emotions are your worst enemy in the stock market.”

Don Hays ~ Stock Market Strategist

stock market rally:

1. a phase in which stock investments in general go up in price.
2. the shorter-term trend of the stock market when the major averages or indices advance.
3. a period of time when savvy investors profit from timely, well-diversified stock purchases on the long side of the market.

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“Trade with the trend. ‘The trend is your friend.’ This is probably the most well-known rule of all. But as simple as it seems, it is easier to violate than you might think. “Remember, there are three trends – the short-term, the intermediate term, and the long-term. Each trend is moving all the time and may be going in the wrong direction opposing the other two…Know which trend you are involved in and its correlation with the other two.”

Victor Sperandeo ~ professional stock trader

stock market timing:

1. the process of selecting the best moments to enter and leave a person’s positions in the stock market.
2. the attempt to buy investments when they are about to increase in value and, conversely, to sell investments before they decrease in value.
3. one of the most critical decisions that a player must consistently do well in order to play Wall Street Craps for fast money with less risk.

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“Markets top not because of smart sellers it’s just an absence of buying. And conversely at markets bottom, markets bottom not because of smart buyers it’s an absence of selling. So that’s our whole thesis and that’s our approach to analysis.”

Tom DeMark Interview 1-20-2012 on Bloomberg TV’s “Street Smart”

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CASH OUT QUICKLY: Sell early into strength by gladly accepting any immediate or unexpected stock market gifts. The market doesn’t care when you bought in. Be happy and grateful to take the money and run.

Occasionally, the stock market will explode with a 200-300 point move in the Dow Jones Industrial Average, based on investor response to optimistic news. While this may indicate the start of a new “bull move,” it could also turn out to be just a “one-day wonder.” Since one could make an argument for either of these scenarios, it makes perfect sense to simply take your profits while they’re available. Don’t let the amount of time that you hold a stock to be a factor in your decision-making process. If you buy one day and then get presented with a spectacular gain the following day, simply go ahead, sell your stocks, and gratefully accept the money. Recent statistical studies have shown that selling out quickly into spectacular short-term market moves is the best strategy on average.

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Comment: Remember that it doesn’t take much for the stock market to change its mind. The year 2011 is one in which the market showed little memory of the previous day’s activities. Therefore, “one-day wonders” became commonplace. Taking profits and, conversely, taking losses should not be hampered by the idea of how long you’ve held your position. When it’s time to buy, buy. And when it’s time to sell, sell. It’s just that simple if you want to maintain a successful disciplined trading approach.

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“Take windfall profits when you have them.”

Anonymous Wall Street Adage