1. Don’t Fight the Tape
That’s an old Wall Street saw you might have seen before. What
does it mean? It simply means you need to go with the trend when
investing and trading. If you “fight the tape,” it means you make
boneheaded moves like investing in stocks that are in a downtrend. Many
traders think they’re being contrarian when they’re really being stupid.
Don’t trying to swim against the current. You’ll drown. But you have no
idea how many people try.
2. Don’t Fight the Fed
You don’t have to like everything the Fed does. That’s fine. Think I do? But when it comes to your trades
and investments, go with the flow or risk getting flattened. Period. The
Fed’s a hammer. You’re a nail. Deal with it.
3. Beware of the Crowd at Extremes
All trends eventually come to an end. When a
trend gets really frothy, the bubble’s probably about to burst. But this
also works the other way around. When no one (and I mean no one) wants
anything to do with a stock or industry, chances are it’s getting to a
point where you should buy. Trouble is, it’s all hard to measure. That’s
why you need to…
4. Rely on Objective Indicators
You have a “gut feeling” about a stock? Then go take an
antacid or something. Remember, the market makes fools of most people
most of the time. And guess what—you’re “most people.” Never, ever,
ever, ever think you can outsmart the market. Instead, rely on your
charts and indicators to tell you when to buy and sell. It’s the best
defense you have against your emotions—which are your biggest trading
enemy. Don’t ever “trade your gut” or else I’ll come over there and give
you a whippin’.
Greg Guenthner, CMT, is the managing editor of The Rude Awakening. Greg
is a member of the Market Technicians Association and holds the
Chartered Market Technician designation.