Survivor Game in Stock Market

I just completed my reading of this little book, Wall Street: The Other Las Vegas by Nicolas Darvas (the author of How I Made $2,000,000 In The Stock Market).  It is an very interesting book and the author shares his experience on becoming a gambler in the stock market.  He knew nothing about stock investment when he first stepped into the stock market but he builds his "gambling" system to win throughout the process.  In particular, he gives instruction to his broker to place buy and sell order at his target price according to his "gambling" system.



So, what sort of "gambling" system does he talk about here?  He:

1. identifies those active counters of the week
2. observes the range of the highest and the lowest price to further shortlist them
3. draw a box which contains the weekly price range of the stock he interested in.  Prices at the top of the box represents resistant level while prices near the bottom of the box form supporting level
4. he places buy order should the price breakthroughs the top of the box for at least three times with increasing volume
5. he places stop loss order not so far apart from its target buy in price when market does not move what he expects

Yes, just like a speculator, he goes in and out frequently based on his buy and stop loss instruction given to his broker.  He only buys when the stock is at its historical high with high trading volume.  His stop loss mechanism will be exercised when the stock prices weakening.  He does not believe in value investing and claims that share price movement has nothing to do with a company businesses and financial fundamental.  However, he admits that a stock's trading volume could be affected by business performance of the company.

So, do I agree on what he says?  Well, what I would like to say the method he invented and practicing is not the only method to make money in stock market.  When comes to stock investment, you have to identify the method that suit you after considering your risk tolerance level as well as investment style.  Bear in mind that what is suitable for him might not suit you.  Most importantly, you have to know what you are doing but not blindly follow. 


In his book, he also claims that he has to invest at a reasonable amount to make his trading cost justifiable and he does his homework before trading instead of expecting what others tell you what to do.  I totally agree with this and this is what I have been advocating in my Invest Bursa course.

In short, we don't have such a buy and stop loss mechanism here in Malaysia.  Therefore, the method of buy and stop loss instruction to broker is not workable in our context.  Also, the method he shares does not suit my investment style as I prefer to buy quality stocks when they are on sales rather than chasing high.  But I do like some of his psychological thinking when come to stock trading which could we could fine tune it to further enhance our mindset on successful stock investment.