Wall Street Craps – 2012 Global Ebook Finance Award-Winner

ALWAYS PLAY THE GAME CORRECTLY: Trade the stock market without any traces of ego or emotional attachments. Your primary objective over the long term is to build real wealth by becoming a savvy investor who manages their money wisely and consistently plays the game correctly.

The reality of playing the stock market is that you won’t win every time you enter into a trade. In fact, the manner in which you handle your losses will determine your degree of success, as much as what you do when you win. As in any sport or serious endeavor, the path to mastery is not about making one great move. Instead, a savvy investor learns to master his or her ability to trade the stock market by taking consistent disciplined action based on accurate thinking and sound investment fundamentals.

Comment: Remember the master strategy for success at playing Wall Street Craps: Always play the game correctly by making only smart bets, at the optimal time, and in the appropriate amount. Do this consistently as well as manage your money wisely and “Know Thy Self” so that you can adjust your play according to your unique individual temperament.

**********

“Yes, risk-taking is inherently failure-prone. Otherwise, it would be called sure-thing-taking.”

Tim McMahon ~ Featured in Money Talks by Rosalie Maggio (1998)

KNOW THE PROPER TIME FOR ENTERTAINMENT: Don’t trade the stock market for the sake of fulfilling your entertainment needs. Your goal in trading is to make fast money and then get out. The time to entertain yourself with the stock market is when you’re on the sidelines anticipating your next big move.

If it’s the thrill of “action” that you crave, then you would be better off taking a gambling trip to Las Vegas or Atlantic City. At least you can get free drinks for playing recklessly with wild betting schemes, when you’re at these places of entertainment. It’s much more appropriate to think of the stock market as a place for making serious money with disciplined thinking, rather than a place for receiving instant gratification with just plain luck.

Comment: Trading the stock market is very much akin to playing chess. Over the long haul of a person’s investing life, the outcome will ultimately be determined by consistent smart moves in terms of market tactics and money management. All of a person’s side issues regarding such things as the need to be right, the need for action, the need to feel special, etc. will only serve to undermine your trading and investing success. When it comes to playing the market for serious money, know that when you are holding trading positions, it’s all business and not necessarily for pleasure.

**********

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

Monroe Trout ~ Trader and hedge fund manager

“TO SELL OR NOT TO SELL? THAT IS THE QUESTION!”: When you follow the price of stocks that you own, it is tempting to calculate how much money you have gained or lost up to that point. But this calculation is only relative to the stock price at which you bought your stocks.

Since buying and selling are essentially independent decisions to make, the captured buying price of a stock should not be a factor at all in determining when to sell it. By keeping the purchase price of a stock fixed in your mind, it will only serve to cloud your thinking and result in making an unwise trading decision to sell or not to sell.

This means that you will likely do two things when you regularly calculate your paper profits:

1. sell too early in an upward moving market and thereby miss out on potential profits, or
2. sell too late in a downward trending market and end up taking unnecessary large losses.

In both of these cases, the unwise decision to sell or not to sell is based on the investor’s fear. And that fear is the amateur’s avoidance of any emotional pain associated to taking a financial loss and, more importantly, admitting that he or she was wrong.

If you are not willing to take a loss and admit that you can be wrong, then you have no business trading or investing in today’s volatile stock market.

Comment: This doesn’t mean that you can’t play the stock market. It just means that trading the market over the shorter-term based on extremes in the underlying indicators is not suited for your temperament. What you can do is play the longer term in your “growth funds” and “security assets” portions of your portfolio in more value and income-oriented buy candidates.

**********

“If you can’t take a small loss, sooner or later you will take the mother of all losses.”

Jack D. Schwager ~ Author of The New Market Wizards (1992)

DON’T COUNT YOUR CHIPS WHILE YOU’RE PLAYING: Don’t count your gains and losses while you have positions in the stock market. This natural tendency will most likely cause you to trade based on the prices of your stocks instead of the underlying market indicators.

In order to reap large gains in the stock market, you must be able to hold a portion of your winning position longer than you’re emotionally inclined. And conversely, in order to avoid large losses in the stock market, you must be able to sell out of losing positions quicker than you normally would like. In both cases, it’s usually the practice of watching the price of the stocks they own that causes investors to sell at the less desirable time.

Comment: Always remember the masses exclusively follow price while the savvy players pay more attention to volume and breadth when it comes to the technicals. And in terms of sentiment, the masses love plenty of company to reassure them of what to do while the savvy players do the opposite of what the masses do at key turning points or extremes in the market.

**********

“Avoid ‘jogging in place’ with your portfolio. Failure to decide is, in effect, a decision. If you would not care to buy each holding in your portfolio each day, you should sell it (barring tax considerations).”

Bennett W. Goodspeed ~ Author of The Tao Jones Averages (1983)

DON’T PARTY WHEN YOU PLAY: The market doesn’t care if you’re on vacation or goofing off somewhere. You must either get out of your positions before you leave or else monitor stock market action after the close of every day while you’re away at play. And if the latter is the case, you must also have the presence of mind to take clear decisive action when necessary.

Not everyone has the experience or discipline to play the market correctly while their mind is somewhere else. Therefore, cashing out or lightning up your positions before you take a real or mental vacation might be the smart way to handle this situation. Otherwise, your play time may end up costing you more than you ever imagined beforehand.

Comment: I know this first-hand from the days before the Internet and when I used to take cruise vacations every October. Back then I couldn’t make trading decisions while I was away on a cruiseship. And the stock market had a not-so-funny habit of always crashing with me aboard every October.

**********

“If a speculator is correct half of the time, he is hitting a good average. Even being right three or four times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong.”

Bernard Baruch ~ Legendary investor (1870-1965)

FOCUS WHILE YOU ARE PLAYING: When you hold positions in the stock market, refrain from as many distractions as you possibly can. Make it a daily practice while you’re in the market to know how the major indexes and underlying indicators performed at the end of each trading day. You never know when the stock market will give you an unexpected gift in the form of a spectacular one-day gain.

That’s why it is so important to pay attention to the market every single day when you’re holding stock positions. It could turn out that your window of opportunity to sell at a great price will be quite small when unexpected news-driven market events occur. As seasoned market players can attest, it’s not uncommon for a big up day caused by investor euphoria to be followed immediately by a sobering big down day. (Note: Never forget a Wall Street adage that reads: “Take windfall profits when you have them.” Sometimes the smartest move you can make is to simply “take the money and run.”

Comment: Always remember that the stock market doesn’t know when you bought your stocks. That means that you should be ready to sell at any time. Pay attention to the stock market whenever you hold positions in your “play money” trading account. Otherwise, you may find yourself selling on the market’s term instead of yours.

**********

“If there is a well-defined movement on at the close, it is more than an even bet that the next day’s market is to be a speedy one, for the closing movement usually carries on in greater strength and for a longer duration than the movements which develop and pass out again during the course of the usual day’s trading.”

Richard W. Schabacker ~ Author of Stock Market Profits (1934)

CATCH A HOT STREAK & RIDE IT: A stock market rally is more about longevity than it is about price. When it comes time to sell, accept whatever price the market gives you. Discipline yourself to sell out before the rally runs out of time.

Most amateur players only concern themselves with the price of the stocks they own. But when you buy investment vehicles like broad-based Exchange-Traded Funds, you’ll know that when the market is up, your stock value will be up and, conversely, when the market is down, your stock value will be down.

If the market gets on a hot roll, be content to take your profits on the way up no matter what the actual quoted price is. An obsession with meeting predetermined price objectives for individual stocks is what keeps many amateur players from selling when the time is right. A major key to trading success is the ability to maintain the mental discipline to buy and sell according to time rather than price.

Comment: When time becomes your determining factor in buying and selling, it is normal to occasionally be a day early and/or a day late. But you will be more likely to participate in a major move rather than be left behind by trying to wait for the perfect price to come in for you.

**********

“If you are in the right thing at the wrong time, you may be right but have a long wait; at least you are better off than coming late to the party. You don’t want to be on the dance floor when the music stops.”

Adam Smith ~ Author of The Money Game (1967)

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.

*****

“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

DON’T HANG ON EVERY ROLL: Discipline yourself to trade according to your underlying indicators and not by the actions of the tape. Following the hour-to-hour action too closely is guaranteed to drive you crazy, cloud your thinking, and cause you to micromanage your trading positions excessively.

Base your primary trading decisions on what your indicators show at the end of each day. You should do the majority of your critical thinking after-hours when the stock market is closed and the pressure to decide immediately is off. Then during the following market day, you can adjust your strategy based on the scenarios that you have already prepared yourself for prior to trading hours. This more disciplined approach can be useful for buying, selling, and holding your positions in the market.

**********

Comment: When I have positions in my play money account, I tend to turn off the television set and avoid listening to commentary on the market. I also make sure that I plan my day so that I don’t get sucked into watching the tape and making a sudden market decision out of impulse.

**********

“Bulls make money. Bears make money. Pigs get slaughtered.”

Wall Street Adage

A Savvy Investing Take: A popular notion among most stock market investors is that success can be boiled down to a simple matter of deciding when to buy, when to sell, and when to hold a particular security. Of these three investing decisions, the matter of knowing when to “hold” your position in a particular stock is perhaps the least thoroughly examined.

As most savvy investors will agree, the act of holding a position in a stock is a challenging task that requires clear thinking and self-control in order to do so effectively. Over time, there will be examples when you hold on too long and sell too late, thereby missing out on profits or incurring larger than necessary losses. On the other hand, there will be times when you sell out too quickly so that you don’t have a chance to recover from temporary losses or miss out on greater gains. The challenge is to consistently hold on to your stocks for an optimal period of time, with the knowing that it’s almost impossible to do this task to perfection.

**********

You can’t afford to be too casual in your approach to trading the stock market when you are holding significant positions. Today’s volatile stock market will quickly punish those investors who fail to make the necessary decisions at the opportune time. Choose instead to stay sharp and ready to act whenever you have trading positions in the market. The proper time to neglect the stock market is when you’re away from the action and sitting on the sidelines in a safe 100% cash position.

**********

“The speculator must be in constant and immediate touch with the market and with his broker… he must either take up speculation as his profession, or must, at least, be entirely free from confinement to any other business calling.”

Frederick D. Bond ~ Author of Stock Prices (1911)