Wall Street Craps – 2012 Global Ebook Finance Award-Winner

DON’T RETURN TO PLAY THE MARKET IN THE SAME MONTH: The stock market requires time to realign itself for its next move up. The market rarely gives a major sell signal and a major buy signal during the same month.

Major shifts in investor psychology require time to develop. The public almost never goes from greed to fear in less than 31 days. If you sell out of your stock positions in an intelligent manner, it makes perfect sense to go away for at least a month without any fear of missing out on a low-risk intermediate-term buying opportunity. A careful study of previous stock market declines will reveal that a large number of major corrections exhibit at least two legs down in price and duration.

Comment: “Two legs down” means that you can expect two separate trends during the course of several weeks where the general stock market moves in an overall downward direction. Each “down leg” will reach a lower level of stock prices before reaching a point where prices temporarily stabilize. This means that there will be a space of time between the two down legs where prices level off before resuming their downward march towards a potential major bottom and low-risk buying opportunity.

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“I try to wait until things set up just right before I take a trade. Then, when I’m ready to take the trade, I slowly count to ten before I pick up the phone. It’s better to have the wrong idea and good timing than the right idea and bad timing.”

Linda Bradford Raschke ~ Professional trader

THE CASINO IS ALWAYS OPEN: Figure out precisely what you did wrong, as well as what you did right after each losing trade. Always forgive yourself for your mistakes and realize that opportunities for improvement often come disguised as misfortune or temporary defeat.

Resist the urge to get back into the market right after you have cashed out. Remember that the stock market will always be there for you to play in, and that it’s not important for you to participate in every minor rally. Have the patience and understanding to wait instead for the next big opportunity, which will present itself on its own time table and not yours.

The great thing about the stock market is that every bottom is followed by a top. And every top is followed by a bottom. It’s been that way throughout history and you can expect this pattern to keep reoccurring well into the foreseeable future.

Comment: Realize that some opportunities to trade for profit are going to escape your grasp. Resist the urge to play the “what if” game and don’t concern yourself with minor stock market moves. Instead, let the market set itself up for a more clearly defined up move.

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“It would be foolish to overlook the human vice of greed. The successful trader must be able to recognize and control his greed. If you get a buzz from profits and depressed by losses, you belong in Las Vegas, not the markets.”

Mark Richie ~ Professional commodity trader

COME TO GRIPS WITH YOUR LOSSES: Figure out precisely what you did wrong, as well as what you did right after each losing trade. Always forgive yourself for your mistakes and realize that opportunities for improvement often come disguised as misfortune or temporary defeat.

A wise individual realizes that there is absolutely no value in beating themselves up for something they have done wrong in the past. After all, you cannot change the results you get in the stock market anymore than changing what you had for breakfast the previous day. Remember to be kind to yourself and choose instead to accept the lesson of your mistakes, uncover any bad habits, improve your system, regain your emotional balance, and move on to your next opportunity.

Recognize that your path to fortune will always have some bumps along the way. The sooner you get over these bumps, the sooner you will be ready and willing to trade successfully the next time around.

Comment: The stock market teaches you valuable lessons about investing and life more through defeat and pain than victory and joy. The purpose of pain is not for you to suffer. The purpose of pain is to heal yourself and then help other to heal from the same thing.

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“Every investor should be prepared financially and psychologically for the possibility of poor short-term results.”

Benjamin Graham ~ Legendary professional investor (1896-1976)

DON’T JUSTIFY YOUR BIG LOSSES: Your goal is to become a savvy player who plays the game correctly. It’s not about outperforming the averages. In a down market, don’t take satisfaction in knowing that you only lost 25% of your entire capital when the S&P 500 Index (one of the most widely followed stock market measurements) lost over 30%.

Professional money managers normally gauge their performance against the general market as measured by the S&P 500 Index in the effort to attract and keep clients. But individual investors are not in that same business and, therefore, should not use this measure as an excuse for losing money.

Individual investors must realize that the only way to lose large sums of money is by holding sizable positions during the wrong period of time. The individual investor always has the flexibility to leave the market and move to a 100% cash position at any moment.

On the other hand, most professional money managers are required to invest a certain portion of their fund’s assets in equities at all times. The professional money manager plays a competitive game that is measured against the performance of other professionals; in contrast, the individual investor is only concerned about making money-management decisions that fit their own objectives and level of risk.

Comment: Big losses are the result of poor decision-making. When it comes to market trading tactics, big losses usually stem from the inability to cut losses short and admit that you’re wrong. When it comes to money management, big losses are causes by concentrated bets that aren’t diversified or involved too much risk.

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“When you sell in desperation, you always sell cheap.”

Peter Lynch ~ Author of One Up On Wall Street (2000)

CELEBRATE YOUR VICTORIES: Make sure that you celebrate all of your winning trades in the stock market with an immediate gift to yourself. That way, you will reinforce the disciplined actions of playing the game correctly.

In addition to showing deep gratitude for your success, it’s also just plain fun to reward yourself with a small indulgence. Think like the lucky gambler on a trip to Las Vegas who, after making a small killing, treats himself to a steak dinner that is essentially “on the house.” While trading stocks is a serious business, it doesn’t mean that you can’t have some fun along the way.

Remember to use positive reinforcement in the form of special gifts to yourself as a means to insure that you keep yourself on the right track of trading the stock market correctly while enjoying the process of becoming a savvy player.

Comment: Celebrating victories has a natural way of stirring up and maintaining your future desire for success. Desire is largely a good thing. It is the seed within yourself that wants to manifest itself through you.

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“The will to win, the desire to succeed, the urge to reach your full potential… these are the keys that will unlock the door to personal excellence.”

Confusious ~ Ancient Chinese philosopher

WALK AWAY FROM THE CRAP TABLE: Move to the sidelines so you can refresh your spirit and refine your investing system while waiting for your next good buying opportunity.

Once you cash out on your stock market positions, be sure to immediately remove yourself from the game; as a result, you’ll be less inclined to second-guess your recent selling decisions. Realize that selling stocks early into market strength will often have you watching them continue to go up without you being along for the ride.

The easiest way to handle this anguish is to get away from the stock market and not monitor its performance for a healthy period of time. Don’t return to the stock market game until your emotional attachment to previously held positions has been significantly diminished and your mind is clear enough to play again from a well-balanced perspective.

Comment: Always respect how powerful the fear of missing out exists in gambling and the stock market. When you watch either activity continue upwards on the path to easy money, it’s hard not to get sucked into the action. As any savvy gamblers can attest, the smartest thing to do when you come to a decision to cash out (or sell in case of the stock market) is to get the heck out of the casino as quickly as possible.

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“Investments are like trains, and if you miss one, don’t worry because another one will come down the line.”

Charles Munger ~ Vice-Chairman of Warren Buffett’s Berkshire Hathaway

ALWAYS LEAVE A GOOD TIP: With an enlightened sense of gratitude, take part of your winnings and give it away to a worthy cause, treat your family, fund your retirement accounts, pay down your debts, increase your insurance coverage, or invest in your own self-education.

This simple habit is a way of giving immediate thanks for the good fortune you receive in a constructive manner. The naïve temptation may be to give yourself all of the credit for your successes in life; however, more enlightened individuals will sense that there are higher forces at work in the Universe to help them achieve their most noble dreams.

Be aware that all of your activities in life present opportunities to help yourself grow, assist others, and become a better person. If stock trading or investing makes you worse as a person, then you’re going about it all in the wrong manner.

Comment: A purely self-centered approach to life will more than likely lead to failure and misery. When you are blessed with good fortune, be sure to share in that abundance. It’s the deep understanding about how life really works that will allow you to enjoy success, happiness, and abundance in your future. Not to think would be naïve.

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“The grateful mind is constantly fixed upon the best. Therefore it tends to become the best. It takes the form or character of the best, and will receive the best”

Wallace D. Wattles ~ Author of The Science of Getting Rich

GREED IS NOT GOOD!: Gratitude is the spiritual energy that attracts abundance to you. Never allow your stock market success to feed your ego. Rather, let success add to your generosity and gratitude in order to revitalize your financial future.

This advice comes from applying spiritual or natural laws of the Universe to your personal investment philosophy. When an investor is properly guided by an empowering philosophy towards money, investing, people, and life, it will automatically add to his or her chances for long-term financial success.

Always remember the universal wisdom behind the philosophy of “more life to all and less to none,” so that you do not get swayed into doing underhanded things that intentionally help yourself at the expense of others. That way, you can avoid getting sucked into destructive strategies (i.e., the infamous Bernie Madoff Ponzi scheme or the shady financial dealings of the fictional Gordon Gekko character portrayed by actor Michael Douglas in the 1987 movie Wall Street who uttered the now-famous signature phrase “Greed, for lack of a better word, is good.”) which are based more on personal greed than on the age-old universal philosophy of “more life to all and less to none.” (Note: The phrase “more life” means more increase in things of value. What all people essentially want is a better life with more freedom and abundance.)

Comment: This advice may come as a surprise or meet with heavy skepticism from several people. That’s because each of us has an inherent bias in our attitude about money. But a careful study in this area will reveal that true wealth and abundance over a person’s lifetime will be largely controlled by our deepest beliefs about how we earn , share, spend, invest, and enjoy money.

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“Fools and greed usually go hand in hand, which creates a field of opportunity for the rational man.”

Mary Buffet and David Clark ~ Authors of Buffetology (1999)

SEVEN OUT — LINE AWAY!: There is a natural lag time between the internal peak in momentum and the external top in price. Sell into the momentum strength rather than get caught in the gut-wrenching drop that follows the top in prices.

Realize that all rallies ultimately come to a sobering halt. Many of the smartest investors in Wall Street history have subscribed to the notion of selling early while the stock market is still rising. This is because guessing the exact top is nearly impossible to do on a consistent basis.

In addition, getting caught in a steep post-rally stock market decline is a painful and costly experience that you want to avoid. Don’t let the emotion of greed take control of your trading decisions when the majority of market barometers are signaling that it’s time to move aside.

Comment: For those who are not familiar with the game of craps, the term “seven out — line away” comes from a common phrase that is spoken by those in charge of running the casino’s dice table. This phrase is announced to the players at the craps table immediately after the dice are thrown and they turn face up with a total that calculates to a sum of seven. This signifies that the standard bet in the crap game called the “Pass Line” is lost and the money that is put on that “line” is taken “away.” This equates to saying to the crap players that they have now lost their bet and that the streak of good luck is over for the time being.

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“Repeatedly I have sold a stock while it still was rising — and that has been one reason why I have held onto my fortune. Many a time, I might have made a good deal more by holding a stock, but I would also have been caught in the fall when the price of the stock collapsed.”

Bernard Baruch ~ Legendary investor (1870–1965)

SENSE THE END OF THE ROLL: The end of a rally is near when the people who missed the boat cannot stand sitting on the sidelines any longer. You must pick up your chips and leave a noisy crowded table filled with emotionally driven latecomers.

Recognize that when investor sentiment is extremely bullish, it is time to be out of all stock positions. However, this doesn’t mean that the market cannot continue upwards. It only means that the potential downside risk far exceeds that of the upside.

Therefore, based on the classic barometer of risk vs. reward, it is wiser to be on the sidelines sitting in cash than it is to remain in an overextended market whose time in the rally phase is about to expire soon.

Comment: When the market starts getting too crazy on the upside, it’s wise to take your profits and run. The temptation is always there to stay to the end of the rally but that often comes without warning and has an uncanny way of trapping greedy traders at the top. So it’s best to gauge the sentiment accurately, sell your stocks, and get away from the market.

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“One must simply get out while the getting is good. The secret is to hop off the elevator on one of the floors on the way up. In the stock market one good profit in hand is worth two on paper.”

William J. O’Neil ~ Author and founder of Investor’s Business Daily