Rule 1: Markets tend to return to the average over time.

Periods of market insanity do not last forever. Even in highest highs or lowest lows, markets eventually go back to its stable, long-term valuation levels. Whatever the market’s current situation is, create a well-done trading plan and stick to it, and never let the turmoil affect you.

Rule 2: There is no such thing as eras.

Most successful traders tend to believe profits are endless whenever the market is moving in their favor. Remember, markets revert to the mean. Therefore, profits beget profits, and losses beget losses.

Rule 3: The public purchases the most at the top and the least at the bottom.

Majority of investors are like John Q. Investor. He reads the newspapers, monitors evening news, and believes what the media tells him. But by the time a particular news item is reported, the move has already been completed and a reversion normally follows.

Rule 4: Excesses in one direction will result to an opposite excess in the other direction.

When markets overshoot, expect overcorrection. Fear gives way to greed, which gives way to fear. Investors should be wary of this, patient about his trades, and implement suitable measures to protect his capital.

Rule 5: Exponential rapidly increasing or declining markets normally go beyond what you think, but do not correct by moving sideways.

The big money holds up, while a steeply profitable move takes effect, holding on to the money in times of a market panic. Sharply moving markets are inclined to correct equally sharply, preventing traders from predicting their next move calmly. In such circumstances, think fast and be decisive, and forget not to place stop orders on your trades.

Rule 6: Markets are broad when at its strongest, and narrow when at weakest.

Many traders are obsessed with the Dow Jones Industrial Average. While it is fine to track well-known averages, the strength of a market is known by looking at the underlying firmness of the overall market. Consider trailing the Wilshire 5000 or other Russell indexes to get a better picture of the market’s health in general.

Rule 7: Bear markets have three phases: sharp down, reflexive bound, and drawn-out fundamental downtrend.

Most market technicians will tell you they find common patterns both in bull and bear market action. Normally, a bear pattern entails a sharp selloff, a sucker’s surge, and last, tormenting edge down to levels in which valuations are more reasonable. This is a general state of depression encompassing overall investments.

Rule 8: Fear and greed prevail more than long-term resolution.

Human emotion, especially fear and greed, is the greatest enemy of a successful trading. But investors can overcome this by applying a disciplined approach to investing, regardless if you are a day trader or long-term investor. Accompany every trade with a plan. Better yet, place stops with every buy order to secure your money.

Rule 9: When all the experts and forecasts agree, they are cooking up something.

This is not magic or anything else. When everyone wants to purchase a stock, there will be no seller, and vice versa. On that note, the market must turn lower.

Rule 10: Bull markets are more enjoyable than bear markets.

Unless you are a short seller, this is true for most traders.