4 Rules You Must Know to Beat the Market by Greg Guenthner - remember, the market makes fools of most people most of the time

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.