7. The First Factor: Momentum—Befriending the Trend

If there is one thing that Wall Street loves to do, it’s coin an adage. “Don’t fight the Fed!” some market veterans will chide. “Don’t fight the tape!” others caution, referring to the long strips of paper containing stock quotes that once spewed out from what was known as the “ticker” in the days before computers made obtaining the latest share price data as simple as clicking a mouse. When markets are particularly volatile or heading south rapidly, cheap markets tend to get cheaper. That’s why the mantra “the trend is your friend” has become the most widely used (or overused) catchphrase on Wall Street.

What these phrases share is a focus on momentum, and specifically the need to be cautious ...

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