An Ace That You Can Keep

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 (GOOG) — 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.