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Commandment No. 9: Don't Trade Off Only the Headlines

Jim Cramer

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 ninth 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

If I didn't know any better, I would think that headlines are written to pick off errant traders who don't know enough. Watch tonight, watch when Intel(INTC) reports. I guarantee you that whatever headline is written for the competing wire services, it won't tell you what to do. If anything, it will throw you off the scent.

That's because the headline writer's job is antithetical to the process of investing and trading. You trade when you have knowledge of outlook, but the outlook comes out after the raw number, which isn't enough to trade on.

That's why I always say (and why my ninth Commandment of Trading is):

Don't trade headlines.

Wait for the story. Believe me, you will rarely, if ever, make money if you do nothing but react to the headline.

How bad can it be? Consider Apple(AAPL). I think that, looking back on the headlines after that company reported, you most definitely would have taken stock rather than sold it, because the headline was written with insufficient information.

Wait for the story. Don't trade the headline. Resist the quick trigger. You will do much better and generate far more winning trades this way.

Random musings: Don't forget, I'll be signing copies of my new book, Jim Cramer's Real Money, at Borders bookstore this Thursday, April 21, at noon. I want to see you in downtown New York, at 100 Broadway -- right around the corner from Wall Street. Should be terrific!