It's important to know how to trade not just invest, especially in choppy markets, Jim Cramer said on a rebroadcast of his
"RealMoney" radio show Tuesday. In that vein, Cramer laid out his "Ten Commandments of Trading."
6. You don't have a profit until you sell. We've all been brainwashed not to sell, said Cramer, but "it's the only way to be sure that you get rich." Paper gains are not the same as booked gains because gains don't necessarily stay gains. Also, don't be reluctant to sell because you want to avoid paying taxes. 7. Control losses; winners take care of themselves. "Loss control is the paramount concern for those in the market," said Cramer, because "it only takes a couple of losers to wreck a portfolio. One bad apple can truly destroy the whole barrel." Stocks often telegraph declines, he said, so use those signals to take the losses before they get hideous. Don't buy into the notion you can't sell until a losing stock comes back, promising not to make the mistake again. These traits wreck long-term performance, said Cramer. "It's how losers think." 8. Don't fear missing anything. Discipline is the most important rule in winning investing and winning trading. "That often means admitting that you missed the golden opportunity," he said. Don't try to participate in the rally after the rally is over. How can you tell? That heart-stuck-in-the-throat feeling usually correlates with the top, said Cramer -- not the bottom. The best time to buy is when it feels most awful. 9. Don't trade headlines. Quickly written news stories based on company press releases are almost always wrong in their quick takeaways. It's very tough, for example, to quickly distill a complicated earnings story into a headline. Words such as "better than expected" should raise a red flag. Wait to read the whole story, listen to the conference call and listen for the company's guidance before acting.
Don't make snap judgments. "If it's a really great opportunity, you won't miss a thing by taking time to inform yourself," said Cramer. 10. Don't trade flow. If you buy a stock based on observing multiple trades to the upside, you're trading flow. That means "you have no idea why people are buying," said Cramer, and "you are trading on ignorance. Ignorant traders never win, ever," he said. You will lose far more than you will make because many investments people make are ill-considered. Thus, attempting to trade off of them is nonsensical. What's more, how will you know when to sell?