BESIDES WYCLEF JEAN

and

, the most played tune on my iPod is Kenny Rogers' rendition of the Don Schlitz mega-hit, "The Gambler." Even if you hate country music, you probably secretly enjoy "The Gambler." Since its 1978 release, the record has sold more than 35 million copies, won a Grammy for Song of the Year, spawned the longest-running TV miniseries in history and solidified Kenny Rogers as a permanent part of the cultural zeitgeist.

With its infectious groove and pop-country appeal, it's easy to understand why the song remains a popular tune. And while there's a big difference between trading and gambling, investors can certainly benefit from the sage advice given throughout the song's lyrics. Click here to view the song's entire lyrics.

The story, you'll recall, involves a young man "on a train bound for nowhere" meeting up with the gambler, a hard drinkin' and smokin' legend who scraped a rocky career "out of reading people's faces." Although the gambler probably wouldn't know preferred stock from livestock, many of his tidbits are just as pertinent to corralling the markets as they are the cards.

One of the most memorable lyrics comes toward the beginning of the tune, where the gambler makes it clear that "if you're gonna play the game, boy, ya gotta learn to play it right." Indeed, whether it's gambling or trading, there's an appropriate way to approach dealing with risk. Gambling, when done in proper fashion, is a methodical, almost automated affair. You always split aces, double down on 11, and follow a mathematical formula for tilting the odds in your favor.

The same applies to trading. From fundamentals to astrology, there are innumerable ways to divine the market. Most influential to your bottom line, however, are a small handful of portfolio-management skills that constitute the "correct" way to trade. Opine all you want on the next move for Google but it's the boring stuff, like using consistent position sizes, setting stop-loss targets and maximizing winning trades, that matters most.

So everyday I ask myself: Am I trading with the trend or fighting it? Am I using consistent position sizes or just shooting from the hip? Am I taking losses early or dragging them around like old wine nobody wants? Am I trading products that are appropriate to my account or simply stroking my ego? Am I taking a smart risk or a sucker's bet? In other words, am I doing the right thing?

Those who typically lose money in the markets usually approach it as a game, armed with "mad money" to burn and a desire for nothing else but quick action. You shouldn't trade for fun, but for profit. The seasoned player doesn't invest based on "feel" or going with his "gut", but sticks with the nuts-and-bolts discipline that best mitigates the inherent uncertainty of markets.

The wisest quip in the song is also one of its least memorable. At the beginning of the second verse, we're told how "every gambler knows that the secret to survivin', is knowin' what to throw away and knowing what to keep." This overlooked line brilliantly encapsulates how every trader should approach his portfolio.

The public cares about being "right," not making money, so they inevitably rush from one hot play to the next, desperately trying to land a win. But the gambler or, in this case, trader is adept at dealing with the cards he is dealt, not those he wishes or thought would have been dealt.

We analyze the markets to the best of our ability, but nobody knows the future. Ultimately, XYZ is just going to do whatever the heck it damn well pleases. This is the problem with the vast majority of research and market analysis. Because it's centered on the security not how to play it one is left completely in the dark as to how to approach taking a profitable position.

The answer isn't so much to analyze where the market is heading, but how you will react to any number of possible scenarios. Good traders instinctively know to "throw away" their losers and keep their winners, just as the gambler plays his strong hands and folds the weak ones. If there is a "secret to survival," that most certainly is it. Yet you'd be surprised how many investors always seem to cut their winners and let their losers run, usually for years at a time.

Finally, one of the smartest pieces of advice comes in the chorus. Both gambling and trading involve the movement of capital, to which the gambler advises "you never count your money when you're sittin' at the table...there'll be time enough for countin' when the dealin's done."

I remember my first job as a clerk for an S&P trader on the floor of the Chicago Mercantile Exchange. Although my boss was a big swinger, often winning or losing tens of thousands of dollars a day, he never referred to dollars, but "ticks" the minimum price fluctuation of a futures contract. If it was 11 a.m. and he was up 30 or so ticks, we'd head down to the Merc Club to eat lunch and smoke cigarettes for a few hours. If he was down any number of ticks, he'd likely stay in the pit trying to make it back or simply take off for the day and try again tomorrow.

The point is that although the job of a trader is marshalling money, in the emotion of the moment, he must be able to divorce himself from thinking of a portfolio as actual cash. You buy 1000 shares of XYZ at $50 and it goes to $48. While the disciplined trader would be able to cut the two-point loss and move on to a higher-probability trade, the amateur thinks about the reality of seeing $2,000 dollars evaporate. He loses his nerve, hopes for a comeback, and most likely ends up selling much lower sunk by the inability to stomach even a modest loss that is, in reality, simply an everyday part of the game.

The same goes for gains. When I'm on a hot streak, I find it helpful not to focus so much on how many dollars I've made, but the strength and price action of the positions themselves. Just as "counting your money" in a loss can lead to poor decisions, thinking of the actual monetary gain of your winners usually ends up making you a much weaker hand, unable to withstand the natural volatility inherent in almost any publicly traded security. It usually happens like this: You buy 1,000 at $50 and it goes to $55. The stock then falls back to $52, shrinking your $5,000 to a mere $2,000. When it ticks down another 50 cents, you buckle and sell out for a $1,500 win because you didn't want to see your gains disappear and, heck, "you never go broke taking a profit."

Of course, the stock ends up bottoming that afternoon, and three days later XYZ is at $60. You should have made $10,000, but because you were so worried about losing the $1,500, the majority of the move was left on the table. Best to focus on the position so as not to be emotionally distracted by the actual dollars involved.

It's worth noting that, while both the trader and gambler make a profession out of dealing with risk, trading is not gambling. Unlike speculative activity in the financial markets, gambling serves no economic purpose. Risk isn't transferred from one party to another; it's simply manufactured out of thin air for a quick thrill. When you trade a stock, bond, option or futures contract, someone is taking the other side of that bet, and, thus, actually playing an intimate role in the functioning of capital markets world-wide. Blackjack occurs between you and Caesar's Palace. There is no economic benefit or transfer of risk. Worst off, even for the best of players, the odds are always on the house's side.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.