Commandment No. 10: Don't Trade Flow

Editor's note: Jim Cramer's new book, Real Money: Sane Investing in an Insane World, is available in selected bookstores now. As a special bonus to RealMoney readers, we will be running Cramer's "Ten Commandments of Trading." For more about the new book and to order it, click here. To learn his "Twenty-Five Rules of Investing," click here. Today, we present Cramer's tenth trading commandment. Read more about his trading commandments:

1. Keep It a Trade
2. First Loss Is Best
3. Take Your Losses
4. Trading Gains, Not Investment Losses
5. Tips Are for Waiters
6. No Sale? No Profit
7. Control Your Losses
8. Don't Fear That You'll Miss Anything
9. Don't Trade Headlines

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Watching the tape is a loser's game, unless you remember that there are sellers as well as buyers at work. I point this out because I really and truly think that most people see "takes," or buys of stocks, and they want to go take those stocks themselves.

Wrong!

Trading flow, trading off of takes or hits, is dicey for even a seasoned professional. Most of the time when you see flurries of buying, it's Wrong! That's the reason my tenth trading commandment is:

Don't trade flow.

Recently, I saw takes of Morgan Stanley(MWD) all the way up to $60 off of news of some defections. The stock just snowballed as the "crowd," which is almost always wrong, figured something big was going to happen.

It sure did. The big happening was that you caught a couple of downgrades as the Street recognized that real revenue producers were abandoning the stock in droves.

Lots of times, the tape reveals sucker plays. Lots of times, people just take because emotionally it feels right. If I were you, I would turn off the ticker. Unless you are a junkie like me and just like to see the ebbs and flows, it really is a meaningless exercise at best and a losing one at worst.

Don't be sucked in.

Random musings: This concludes my second installment of takeaways from my new book, Jim Cramer's Real Money: Sane Investing in an Insane World. To get more, you have to buy it! I can make it fun for you. Come to Borders bookstore in downtown Manhattan, 100 Broadway, tomorrow (Thursday, April 21) at noon and get a signed copy! I'll be dishing them out left and right!

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