This is a seven part series on trading stocks. All right, so they won't kill you, but if you violate any of these stock market sins, you may kill your portfolio. LUST Sure, it's pretty and shiny and brand new, and of course "all the other kids are investing!" But you should never fall in love with a stock without doing the research. Think of it as doing a background check on the new love of your life. Often, when the rest of the market is in love with a stock, you can take a contrarian approach and wait for that love to fade. There are exceptions of course, Google being one of the ones that pop to mind. Everyone lusted over this high priced behemoth from the IPO and sent the stock price soaring into the stratosphere. Had you loved that ride, you could have pocketed a pretty profit. But if you were in love with the stock, and held on too long, you would have learned one of the hard and fast rules of trading stocks. What goes up will come down. If you keep your stock lust in check, your portfolio should stay safe. ENVY You may want to play like the big players in the market, you may wish you had a huge portfolio that affected volume, and in some sense, could determine the direction of a ticker price on any given day. Stop wasting your time, effort and energy. You are not one of the big boys, who control hundreds of thousands of shares of stock. You may end up at that point in the future, especially if you are following the advice of a trusted professional and learn how to use options, but for now, your foray into a day trading career should not have room for comparing what you do to what "they" are doing. You are growing your own portfolio in your own fashion using detailed research and analysis to be sure you don't lose your nut. Envy is a wasted emotion. But that isn't to say you shouldn't have goals. You should watch what the giant funds are doing to determine if you can take a position on a stock and pull a profit. If your goal is to make $200 a day in the market as part of your day trading job, then learn how to read volume plays, and you could reach that point from other's actions. That's not stock envy. Just plan each entry and exit point carefully, which leads us to the next deadly sin tomorrow. GREED If you envy what other stock traders are doing, and you want what they have, you may take a position on a trade, and then feel consumed with an overwhelming feeling called Greed. We all know what greed feels like. We have some, and we want more, and rational thought be damned. When you execute your trade strategy, you need to have clearly defined entry and exit points to protect your profit and capital. Greed can make you hang onto a stock too long trying to make a little more on it. But when you do your research, and set your limits and stops so you walk away with set profits or loss, you are eliminating greed from your mindset. Remove emotion from your investing mindset and you will be a successful trader. Another way greed gets us in trouble is through "hot tips." Every message board is full of anonymous postings about the next big thing that's going to skyrocket due to blah, blah, blah. Remember when I suggested getting advice from a professional you trust? Don't trust any poster that doesn't use their real name. Why would you take advice from "secret1122" or "chitownkilla07" telling you their inside secret on a stock? Greed. Here's the thing, everybody has a hot stock tip, because they know the cousin of a neighbor who knows a guy who works on Wall Street and he heard . . . The bottom line is for you to know your source. Now if your source is a neighbor, who has a cousin that was just laid off from a company's factory, and they tell you this is the first of three or four rounds, hit the internet, research it quickly, and determine if that company is in trouble, and how it will affect the stock price. Just don't get greedy when you place your orders. SLOTH You cannot be lazy and be a good stock trader. You may make some initial money following the advice and actions of others, but eventually you are going to need to learn the language so that you can get good at your trades. It's all about control. Are you too lazy to take control of your financial destiny? Research is not hard, especially with the multiple tools available to you on the internet. There is no excuse for sloth in stock trading. Would you move to a new country and never learn how to navigate the streets, where the best stores and pubs are located, or how to speak the language? Of course you wouldn't. In fact, immersion is one of the best ways to get up to speed quickly on anything. One of the best ways to prevent yourself from being slothful when it comes to stock trade is to establish a schedule. Plan one hour of research before the market opens, and an hour or two after close. Listen to what the talking heads are spewing, read the headlines and news stories, set your RSS feed for alerts based on your stock choices for the day, and stay on top of your trades. Even longer term trades need a little attention, since a badly timed trade or natural disaster can wreak havoc with your best laid plans. Your plan is what will make you a successful day trader, and no plan can exist without doing the legwork (or keyboard work!) It's difficult to create a good workable plan if you let sloth take over. That's not to say you can't have days where you "check out" or take a vacation. One of the attractions of a job trading stocks is the ability to control your work week, and hours based on your own personal goals. You could make your weekly profit goal (paycheck) in the first two days of trading, and relax for the next five, or you could have a set four day work week, or even a 4 hour work week that involves the actual placing of stops and limits, with the rest of the time belonging to you. Just remember, that kind of lifestyle isn't for lazy people. It's a reward for people who believe in hard work while they are working so that they can enjoy the fruits of their labor. There's no laziness involved, just careful planning. GLUTTONY Have you ever been to a family dinner where all of your relatives are gathered and eaten so much food that you are miserable? Or gone to an all you can eat buffet and revisited the food bars so much you can barely waddle out to your car once it's all over? That's called gluttony, and it's especially bad in a stock trade. But how can gluttony in a stock setting be bad, you ask? Doesn't that mean you're being stuffed with profit? Gluttony means you've forgotten the rules and limits you've set for your trade and you've thrown control out of the window. Gluttony is what leads to a market like the one we are experiencing now, and what led to the hedge managed funds that plundered hundreds of thousands of 401K's. It's what keeps you in a trade too long, and makes you lose sight of the long term goal. You should make money in your stock trading career and our hope is you make a lot of money every day. But we suggest you make it through careful planning and execution. If you are on a hot stock run, play it out, but stay on top of it so that greed doesn't take over and you wreck your whole plan. There's a difference between walking away and leaving money on the table and losing out on triple or quadruple profits because your plan and research didn't have a contingency for it. Gluttony is one of those stock trading sins that has a very fine line. Learn to recognize the line, so that you can push away from the table before you're stuffed to misery. WRATH Let me give you rule number one of trading stocks, and you need to put this up somewhere that you're going to see every single day. You are going to lose money on a stock trade. It happens because the stock market is a lot like a living breathing creature that can take on a life of its own. You can plan, you can conduct research, and still hit a run of bad luck that can decimate your nut. You cannot get mad at the market, at your fellow traders who may be making money, or at your advisors. Anger serves no purpose other than to fog your brain and make it more difficult to think of a way out of the downward spiral. In the 90's there were a string of day trader shooting sprees based solely on wrath. Idiots were expecting to make millions and they wanted it overnight and didn't want to put in the time, effort or research to make it happen, and when they lost money, they took it out on innocent people with violence. Wrath has no place in the stock market. The harsh truth is maybe you are not cut out to be a day trader. Not everybody in the world can be a rock star, because not everyone can sing. And that's okay. You don't have to be a superstar trader to make money in the stock market but if you don't have the patience, fortitude and discipline to realize that you will have bad days with the good, and the emotional maturity to handle a bad day, then go do something else. Flip burgers with a smile, and be the best damn burger flipper the fast food joint has ever seen and you will rise in the ranks of that company like a rocket. But being a stock trader means taking the downs with the ups, and being a good trader means executing your heavily researched plan without the emotion of anger. You can't control the weather, and you can't control the market. You can only control how you react to the weather and the market, and it makes zero sense to be angry at either. PRIDE Especially now the market has shown us how the mighty have fallen. Pride is the source of many decisions that have an effect on our portfolios. Here's the secret to keeping pride in check. You cannot know or control everything. Once you accept that secret, and take it to heart, you will open yourself up to a whole world of information. Pride prevents you from learning new things about stock trading, or to listening to information and knowing how to apply it to your trading plan. Pride turns you into a "know it all" and you know what they say about people who think they know it all right? They annoy those of us who do. Just kidding, but seriously, if you approach every trade from the position that you will walk away from the transaction knowing more than when you went in, you will never have a bad trade. You may lose money, but you will learn what not to do next time, which turns your loss of profit into an educational opportunity. So instead of losing money on the stock trade, you invested in your education. Pride can prevent you from learning, and lack of learning can make your nut disappear. Remember how you learned to ride a bike? You fell down a lot, until you learned to pedal and balance, and steer all at once. Even as you were learning, you knew you were going to fall, and the wobbly struggle was trying to put it off for as long a possible. But still, you fell, and you kept trying, until know, riding a bike is second nature for most of us. Learning in the stock market is like that, except you need to keep researching and keep gathering information every day so that you wobble your way to profit time and time again. Don't let pride keep you from making money. But don't be so humble that you don't celebrate your accomplishments either. Being a successful day trader and controlling your own financial destiny is something to be proud of.
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