In Las Vegas, there is an old adage that says you want to always know who the smartest guy in the room is. Most people look around the room and try to size up their competition.
However, the real answer in this scenario is that the smartest guy in the room is the person who OWNS the room! Why? Because the person who owns the room knows that, in the long-term, the odds of success are clearly stacked in their favor!
Focus on Probabilities, Not Possibilities:
The same rule applies to Wall Street and most other endeavors in life. Before making a decision where the outcome is uncertain, ask yourself:
Are the odds of success stacked in my favor?
If not, you might want to think twice before making that decision. Remember, anything is possible in life, but success comes from measuring what is probable.
The same thing is true for buying and selling stocks on Wall Street. Define and measure your downside before you enter the trade. This way you know exactly where you will exit if wrong and how much you will lose. If you are comfortable with that risk, and see a favorable reward, then you should take the trade. Otherwise, if the risk or reward ratio is not favorable then move onto the next idea.
Check out More Posts here:
- How to Let Your Money Work for You
- Nicolas Darvas; Lessons from a Trading Legend
- Gambling vs Trading; the Difference is in the Long Game