The Seven Deadly Sins of Trading

I had a suggestion to write this post after my write-up on my personal "Ten Commandments" of trading. Here are a few mistakes you will never want to make. Take it from someone who has already crossed the line before you, and here to advise you that you don't want to make the same mistakes.

Our money is hard earned and does not deserve to be thrown away over preventable instances. I will list my own personal 7 sins, feel free to add or subtract from this list in the comments section.

1. Trading an inappropriate position size.
Simply put...if you risk too much, you'll lose too much. In my eyes, this is the single most important rule of trading. Risking only 1-2% of an acct value is crucial to staying in the game.

2. Not knowing when to take the loss.
If you cannot answer the questions "Where am I taking the loss," and "Where is my profit target" then stay out of the market. If you leave these decisions for later, then you will make them emotionally, which will be the worst decisions a trader can make.

3. Trading on someone else's research or recommendation.
We have all heard stock tips thrown our way. Sometimes we might even hear people throw out potential trades that they are watching and become tempted to jump in. Sometimes I throw out stocks that I am trading and I am watching. The problem is that you might not know what this person is watching for, what strategy this stock fits, or what types of efforts are thrown into their research. If you take these stocks into consideration, make sure they are trades you would have likely come across on your own by conducting your own research.

4. Over Trading
Do you find yourself taking low quality trades to be more active? Stop it!

5. Trading without a trading plan or trading rules
You have all heard this a hundred times, so hear it again. What is your approach? Why? For instance, I am an options trader. I know what signals I take, I know the types of stocks I take them on, I know when to enter and when to exit. Make sure you are this familiar with your own plan you you have a benchmark to measure up against.

6. Trading without appropriate market knowledge
Do you fully understand every element of the strategy you are trading? Pro's & con's, risks & rewards, etc. Are you placing proper emphasis on the important things (ex. price, volume, etc.) and minimal emphasis on the more glamorous but less important items (ex. candle patterns, oscillators, etc.)? Is your strategy cohesive with the market environment and with the trend and condition of the company stock? One of the worst trades I ever took was on a strategy I really knew nothing about.

7. Trading with emotion instead of discipline
Trading with emotion will bring down your empire. Understand yourself and your tendencies first before making expensive decisions. As you create a trading plan, it will help you to reduce emotion and enhance discipline. Each person is different, but we will all fall down if we don't eliminate situations where we rely on emotion to make choices. Get started right away.

I would like to reiterate my breakout watch for today:

1)CAT. bear flag confirmed friday. Still a great entry

2) AKAM. looks like a head and shoulders top to me with a $46 neckline roughly.

3) HAS. Nice flag breakout today on good volume. As the holiday season approaches, there's a huge risk/reward here.

4) DO. I see a head and shoulders reversal to the upside with a retest today. As energy has reversed, this a great entry opportunity on a stock just beginning to turn around.

5) CAL. Flag-like breakout today with a likely $5.50 move up.

Good luck!

Also, a solid flag breakout on SIGM today as well. I was in this one from a week ago, but today is the true breakout.


I could sell you some advertising space on the blog if you'd like? A place to corral all of your picks perhaps?


I apologize if it annoys you. Let me know and I'll stop. I'm just trying to share some setup ideas with the group. See you tomorrow morning!

Just having a laugh. It seemed right as todays post went up, the trades started pouring in. I am sure everyone appreciates your efforts.

Thank you

Great info. Here is how I compare:

1. Guilty
2. Guilty
3. Guilty
4. Not enough evidence for conviction
5. Guilty
6. Guilty
7. Guilty

I wish I could go back 6 months in time.


Hi Jeff (or anyone else who can answer this),
In sin #2 it says you need to know where your profit target is. I'm wondering how you set this for breakouts? In the comments section of a post from October 24th titled "Breakouts" someone asked the same question, and it was answered with:

"Measure the pattern preceding the breakout. If it's a triangle, measure the opening. If it's a flag, measure the flagpole. If it's a rectangle, measure the rectangle. Remember, those are MINIMUM targets."

But I think they got mixed up with price pattern breakouts. If not, then how would you set a profit target if there wasn't a preceding pattern?

Thanks for the help,

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About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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