The artificial intelligence (AI) battle is heating up, with tech giants Alphabet Inc. (NASDAQ: GOOG) and Microsoft Corp. (NASDAQ: MSFT) going toe to toe.
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 must use tools to help reduce the role emotions play in our trading.
If we don’t, we’ll overtrade, revenge trade, and lose control of our risk management.
There’s a good reason that hedge funds build algorithms (robots) to quantitatively trade — these machines have no emotions.
Ideally, you want to trade like a hedge fund robot. Think of yourself as the ‘Terminator of Trading…’
You have 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.
Keep reading and I’ll show you what I’m talking about…
Trading Sin #1: Fear
Have you ever heard the old adage ‘scared money doesn’t make money?!’
This saying has never rung more true than it does in the stock market.
The fear of losing can cripple your judgment as a trader.
If you’re terrified of the capital you could lose, you’re unlikely to make the best decisions when you’re trading.
You could potentially miss a five-star, account-changing 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!
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 opulent vacations … while others simply want to quit their day jobs or stop stressing about their finances.
Those in the former category are leaning into their vanity, and I think this is a mistake as a trader.
If your only goal is to buy expensive things, you’re gonna end up disappointed in the end.
Take my mentor, Tim Sykes, for example…
When Sykes first became a millionaire, he splurged on fancy cars, houses, and other frivolous things — and he wasn’t shy about sharing his lavish purchases on social media…
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)…
Here’s a photo of Sykes in front of a school he named after me — “The Mark Croock Learning Center!”
Sykes will be the first to tell you that philanthropy has brought him far more joy than material possessions ever did.
And if Sykes — a guy with 20 years of experience and $7 million+ in trading profits — has realized it’s not all about the money … you should probably take a page out of his book.
Bottom line: Forget about vanity!
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 option contracts. They’re deep in the green. But you think if you hold them a little longer, perhaps you could 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 mistake that could cost you dearly.
But how can you avoid falling victim to greed?
- Identify your price targets and be disciplined about exiting your trades once you hit them.
- Be objective about your trading. Check yourself before you wreck yourself!
- 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.
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I know this from my own trading journey…
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…
CAUTION: 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 market participants view trading as a zero-sum game.
They think, ‘If this guy is winning, I must be losing.’ But this is a TERRIBLE 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.
Bottom line: Don’t envy other traders — learn from them!
When you’re trading … focus on your technical analysis, your price targets, and your most promising setups.
Don’t commit the trading sins I’ve outlined today. You’ll regret it.
And the moment you start to notice your pesky human emotions creeping into your mindset … tell them ‘hasta la vista, baby!’