- Rule # 1. When faced with sure gains do not be risk-averse, while faced with sure loss do not become risk-taker.
- Rule # 2. Beware of situations when high percentage of participants become overly optimistic or pessimistic of the future, it is a signal for the opposite scenario to occur.
- Rule # 3. Never aim to enter or exit trade at exact market bottom or top. If you succeed to catch the exact market top/ bottom then you are lucky amongst millions, which most of us are actually not.
- Rule # 4. Avoid entering trade in bubble situations and speculative runs. Sit on the sidelines till dust settles down.
There is a human tendency to give too much weight to recent experiences and extrapolate recent trends that are at divergence to statistical odds and rationale. That is how investors become more optimistic and aggressive in their trade when market goes up and more pessimistic than necessary when market goes down. Let greed and fear not grip you in such situations. Simply remember that what goes up has to come down, and vice versa. Laws of nature will ultimately govern everything in our lives and stock market is no exception. The legendary W D Gann gave utmost importance to the laws of nature and astrology while devising his super successful trading strategies in different markets. Later on in this series we shall also learn to pay our obeisance to the laws of nature.