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    10 Timeless Market Rules

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    Sunil Jadhav

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    10 Timeless Market Rules

    Uploaded by

    Sunil Jadhav
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    1 views3 pages

    10 Timeless Market Rules

    Uploaded by

    Sunil Jadhav

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    10 Timeless Market Rules

    Introduction
    Bob Farrell was the head of Merrill Lynch Research for decades, and during that
    time he established himself as one of the premier market analysts on Wall Street.
    His insights on technical analysis and general market tendencies were later
    canonized as "10 Market Rules to Remember" and have been distributed widely ever
    since. Let's take a look at these timeless rules and how they can help you achieve
    better returns.

    No.1. Markets Return To The Mean Over


    Time
    Whether it's extreme optimism or pessimism, markets eventually revert to saner,
    long-term valuation levels. For individual investors, the lesson is clear: make a plan
    and stick to it.

    No.2. Excesses Lead To An Opposite


    Excess
    Like a swerving automobile driven by an inexperienced youth, overcorrection is to be
    expected when markets overshoot. Fear gives way to greed, which gives way to
    fear. Tuned-in investors will be wary of this and will possess the patience and know-
    how to take measured action to safeguard their capital.

    No.3. Excesses Are Never Permanent


    The tendency among even the most successful investors is to believe that when
    things are moving in their favor, profits are limitless and towers can be built to the
    heavens. Alas, as in the ancient Tower of Babel story, it's not so. As the first two
    rules indicate, markets revert to the mean
    No.4. Corrections Don't Go Sideways
    Sharply moving markets tend to correct sharply, preventing investors from
    contemplating their next move in tranquility. The lesson: be decisive in trading fast-
    moving markets. And always place stops on your trades to avoid emotional response

    No.5. The Public Buys At The Most At


    Top And The Least At The Bottom
    The typical investor, John Q, reads the newspapers, watches market programs on
    television and believes what he's told. Unfortunately, by the time the financial press
    has gotten around to reporting on a given price move - up or down - the move is
    complete and a reversion is usually in progress: precisely the moment when John Q.
    decides to buy (at the top) or sell (at the bottom).

    No.6. Fear and greed are stronger than


    long-term resolve.
    Basic human emotion is perhaps the greatest enemy of successful investing. By
    contrast, a disciplined approach to trading - whether you're a long-term investor or a
    day trader - is absolutely key to profits. You must have a trading plan with every
    trade. You must know exactly at what level you are a seller of your stock - on the
    upside and down.

    No.7. Markets are strongest when they


    are broad and weakest when they narrow
    to a handful of blue-chip names.
    Many investors are "Dow-obsessed," following with trance-like concentration every
    zig and zag of that particular market average. Broader averages offer a better take
    on the strength of the market. Instead, consider watching the Wilshire 5000 or some
    of the Russell indexes to get a better appreciation of the health of any market move
    No.8. Bear markets have three stages -
    sharp down, reflexive rebound and a
    drawn-out fundamental downtrend.
    Market technicians find common patterns in both bull and bear market action. The
    typical bear pattern, as described here, involves a sharp selloff, a "sucker's rally",
    and a final, torturous grind down to levels where valuations are more reasonable; a
    general state of depression prevails regarding investments in gener

    No.9. When all the experts and forecasts


    agree, something else is going to
    happen.
    This is not magic. When everyone who wants to buy has bought, there are no more
    buyers. At this point, the market must turn lower and vice versa

    No.10. Bull markets are more fun than


    bear markets.
    This true for most investors - unless you're a short seller.

    Conclusion
    Many investors fail to see the forest for the trees and lose perspective (and money)
    unnecessarily. The above listed rules should help investors steer a more focused
    path through the market's vicissitudes.

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