We’ve all heard about the crazy things AI can do … and it’s downright scary.
But there’s one thing AI lacks and may never be able to demonstrate — human emotion.
Ironically, it’s our emotions that get us into trouble as traders.
And while we can’t eliminate them like an AI, we can use tools to help reduce the role emotions play in our trading.
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You see, if we don’t reduce our emotions, we’ll overtrade, revenge trade, and lose control of our risk management.
There’s a good reason hedge funds build algorithms (robots) to quantitatively trade — these machines have no emotions. Ideally, you want to trade like a ‘smart money’ robot.
Think of yourself as the “Terminator of Trading” with one mission and one mission only — to profit in the stock market.
That said, every trader will eventually face a moment where their emotions test their discipline.
Will you allow your emotions to affect your decision-making, or can you set them aside to trade like a machine?
I find that there are four emotions in particular — I call them “trading sins” — that prevent newbies from reaching their ultimate potential.
Let’s break them down so you don’t fall victim to these trading sins…
Table of Contents
Trading Sin #1: Fear
Have you ever heard the old saying “Scared money don’t make money?”
Well, this adage has never been truer than it is in the stock market.
The fear of losing can cripple your judgment as a trader.
If you’re scared of losing money, you’re unlikely to make the best decisions.
You could potentially miss a five-star, grand-slam, account-multiplying setup just because you’re afraid of losing money.
Luckily, there’s a simple way to avoid this fear — never risk more than you’re willing to lose.
It’s all about position sizing. You must determine what size keeps you emotionally comfortable while simultaneously giving you enough room to make decent profits.
As long as you’re sizing your trades based on your personal risk tolerance, you should never be afraid of entering a promising setup.
Trading Sin #2: Vanity
There are a variety of reasons why people want to get rich in the stock market.
Some dream of luxurious goods, sprawling mansions, and exotic vacations … while others simply want to quit their 9-5 jobs and stop stressing about their finances.
Those in the first category are leaning into their vanity, a trading sin you should try to avoid.
If your only goal is to buy expensive things, build your bank account, and show it all off to the world … you’ll end up disappointed.
Take my friend, mentor, and business partner Tim Sykes, for example…
When Sykes first became a millionaire, he splurged on fancy cars, houses, and other frivolous things.
Moreover, he wasn’t shy about sharing his lavish purchases on social media…
Sometimes my #Lambo is my office as I am always working/studying/teaching/trading! pic.twitter.com/kiMHrhhu83
— Timothy Sykes (@timothysykes) May 29, 2018
Who needs a costume when you have an orange Lambo? Happy Halloween! pic.twitter.com/sekrHOllpH
— Timothy Sykes (@timothysykes) October 31, 2018
But since then, Sykes has realized that there are much more gratifying things to do with his money (like giving it away to those in need)…
Specifically, he’s been focusing on building schools in third-world countries through his non-profit organization, Karmagawa.
The non-profit has built a staggering 100+ schools since 2015 … and counting.
Sykes will be the first to tell you that philanthropy has brought him far more joy than material possessions.
And if Sykes — a guy with 20 years of experience and $7.5 million+ in trading profits who’s helped 30+ traders become millionaires — has realized it’s not all about the money … you should probably take a page out of his book.
Trading Sin #3: Greed
Greed is one of the most obvious trading sins, but it’s also one of the most difficult to see within yourself.
That said, we’ve all been there…
You’re holding a momentum trade. It’s deep in the green. But you think: “If I hold this trade a little bit longer, I might profit even more…”
This is greed rearing its ugly head, trying to ruin your otherwise excellent trade.
Don’t let this happen to you. Allowing your greed to control your trading is a critical error that could cost you dearly.
But how can you avoid falling victim to greed?
- Stick to your trading plan. Identify your price targets and be disciplined about exiting your trades once you hit them.
- Be brutally honest with yourself about your trading. Track your trades and adjust your strategy to avoid common mistakes.
- Do your best to trade like a robot. Leave your human emotions at the opening bell.
Trading Sin #4: Envy
Have you ever felt discouraged watching other traders have more success than you?
I get it. it stings when I see someone who’s put in less time and effort achieve greater success.
I know this from my own trading journey…
It took me several years of active trading before I became consistently profitable. And during that period, it felt like I was getting lapped by so many traders.
Throughout my first few years in the markets, I watched several of Sykes’ younger students surpass me in total gains.
Did I get discouraged by it? Of course not…
On the contrary, it motivated me to study harder than anyone else. I got even hungrier for success … and it eventually paid off.
Don’t let trader envy affect your overall mindset.
I’ve known mentally weak traders who struggled with watching others succeed as they faltered. It wasn’t long before they’d blow up their accounts and have to head back to their day jobs…
Short-sighted newbies view trading as a zero-sum game.
They think, “If this guy is winning, I must be losing.” But this is a counterproductive way to view your path to success.
There’s plenty of action in the stock market for everyone. Just because some other trader is crushing it, doesn’t mean you can’t do the same.
Don’t envy other traders — learn from them.
If you want exclusive access to my stock alerts, my two webinars a day, the algorithmic trading tool I use every single day, and more, subscribe to my Daily Income Trader service.
Then, avoid the trading sins I’ve outlined today and you’ll be a better trader for it.
The moment you notice your pesky human emotions creeping into your mindset … tell them “Hasta la vista, baby!”
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
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