Introduction

W
hen you rst start trading, there are a lot of
common pitfalls. Nearly every trader has fallen
into these traps before, whether they want to admit it
or not. Heck, I made plenty of mistakes until I found
someone who told me about trading mistakes I should
avoid at all costs. Before then, I lost about 50% of my
trading account when that could’ve been avoided from
the jump.

Moving on, through years of experience in the markets

and teaching, many beginners were asking me how I
avoided some common pitfalls such as not letting my
emotions get to me, and how to conduct proper
research.

Now, I realized many traders make the same trading

mistakes and they are very similar to the seven deadly
sins. Let’s call these the “Seven Deadly Trading Sins.”
If you’ve never heard of or don’t remember the seven
deadly sins, here’s a look at them:

1. Lust

2. Glutton
 3. Greed

4. Sloth (Laziness)

5. Wrath

6. Envy

7. Pride

If you can remember these, you can minimize the

number of mistakes you make and potentially save you
money.

Now, it’s not just about remembering the “Seven

Deadly Trading Sins”, you need to take action and
preventative measures. Wall Street has an old saying,
“95% of all traders fail.” Well, the reason why the
failure rate is so high could be attributed to these
deadly trading sins.

For example, “Lust” for traders means falling in love

with a stock and not taking into account risk –
thinking the stock will just go up every day. However,
we all know stocks could get volatile, and if you’re on
the wrong side of the trade and still think the stock
will still go up, you could potentially ruin your trading
career.

You’re probably thinking, “Well,

how do I avoid these seven deadly
 trading sins and reduce my risk of
blowing my trading account up?”

Before we go over ways to prevent you from

committing these deadly sins, let’s look deeper into
these trading sins, in no particular order. Don’t worry,
I’m not going to just tell you these sins and leave you
hanging. I’ll discuss some ways for you to prevent you
from committing these seven deadly trading sins.

Lust
Traders Falling in Love With Stocks

L
et’s face it, if you just started trading, you’ve
probably loved a stock so much that you held it for
too long… only to realize losses from a mistake. Heck,
sometimes beginners will buy a stock, sit in pro ts and
get married to it, hoping it will run higher. Thereafter,
the stock moves against them and they end up turning
a winner into a loser. That said, in the trading world,
you can’t fall in love with stocks and get married to
them.
If you get married to stock, you could potentially
destroy your trading account, especially if you
continue to buy as the stock goes against you. There’s
new information hitting the market all the time, so if
the catalyst goes against your trade idea, then you
should cut it and take the loss, not buy more shares.

For example, let’s say you noticed this pattern in PG&E

Corp. (NYSE: PCG) on the daily chart.

This is known as an ascending triangle pattern, often

thought to be a bullish pattern.

If you were anticipating the stock to break above $50

(the blue horizontal line), and stop out below the blue
uptrend line, that would’ve been a pure technical
analysis trade idea. Don’t worry, we’ll discuss how to
nd potential targets and stop-loss areas in a later
section.

Let’s assume your trade idea was set up like this.

Well, what do you do when the stock does this?

Now, beginner traders will often see the stock reach

their target, but not take pro ts and holding on for a
larger move. Well, if you fell in love with PCG, you
would’ve been in a world of pain.

If you notice, the stock gapped down and closed nearly

20% lower on the day. The reason?

There was a negative catalyst. The California wild res

forced residents to ee from their homes, caused
deaths, and billions of dollars in liabilities. Now, PG&E
was already facing hefty liabilities for the 2017
wild res, and this time around in 2018, the company
was also to blame due to its unsafe power lines
sparking the re.

An experienced trader would have tried to sell their

shares during the pre-market hours. Heck, a successful
trader would not have bought that due to the ongoing
potential negative catalysts. Now, conversely, beginner
traders may have panicked and bought more shares,
thinking the stock would recover. You see, when you
don’t have experience trading, it’s harder for you to
understand catalysts.

It’s easy to fall in love with a stock, and buy more

shares, especially if it’s going against you. The reason
being, some beginners follow the school of thought
when something gaps down signi cantly, you could get
a better average price. This is known as trying to catch
a falling knife. In other words, you’re going against the
trend and trying to pick a bottom. Through experience,
I’ve found that to be very dif cult to do successfully,
and you would need deep pockets.

Here’s what happened to PCG.

The stock got decimated and was potentially going
bankrupt.

If you got married to this stock, your trading account

would’ve suffered and you might need to build up your
capital from scratch.

Let’s look at another example of when falling in love

with stock could’ve costed you.

Check out this chart of Tilray Inc. (TLRY).

This was considered one of the hottest initial public

offerings (IPOs) of that year. Now, Tilray is a Canadian
pharmaceutical and cannabis company. The company
priced its IPO at $17 per share and raised $153M. A few
months after TLRY commenced trading, the stock
exploded.

Now, let’s assume you bought shares of TLRY when it

broke above the blue horizontal line (the previous
high) at $135. Then, the next day you see the stock
double… and you fall in love with the stock, after all, it
is the rst cannabis company to conduct an IPO on
Nasdaq. Moreover, Canada was in the process of
legalizing cannabis for both medicinal and recreational
use.

That said, there were a lot of positive catalysts going

on and multiple reasons to love the stock. However,
when a stock has an explosive move like that, it tends
to retrace. Assuming you believed the stock could run
higher and wanted to hold it for the long term, you
would’ve done some serious damage to your account.

Here’s what happened with TLRY.

Some traders, like Jeff Bishop, actually were looking to

short this stock due to the fact it went from being a
small cap stock to a large-cap stock in just a matter of
months. Generally, it takes companies years to do that.
Jeff actually gained exposure to the options market,
and it’s not rare to see him lock in 100%+ winners like
his TLRY put options trade.

Now, if you were actually in this trade based on a

continuation or breakout pattern, and then fell in love
with the stock… thinking it was a core hold, you
probably would’ve been kicking yourself. Experienced
traders gured this stock moved too far and too fast,
and were just looking for quick pro ts because they
knew TLRY probably wasn’t going to be the next
Canopy Growth (CGC) any time soon.

That said, you should avoid this sin at all costs. One
way to go about this is to stick to your trading plan,
which I’ll discuss later. Now, let’s look at another
deadly trading sin: glutton.
 Glutton
Overtrading

G
lutton in the trading world is overtrading. Now,
many traders and investors do it for the thrill of
pushing the buy button to get the adrenaline owing.
Well, this is the wrong mentality. You see, trading
should be treated as a business. If you were the CEO of
a company, you wouldn’t conduct operations just for
the fun of it. Rather, you would develop a course for
action.

You’re probably wondering, “What

do you mean by overtrading?”

Well, traders would say you’re overtrading, or

churning, when you excessively buy and sell stocks.
That means trading without a plan and gambling your
money. In other words, you’re too active, which could
be detrimental to your trading account.
Now, there are many reasons beginners overtrade, such
as:

Chasing potential pro ts thinking they will

make a ton of money over a short period

Consistently nding “compelling” ideas

FOMO

Buying and selling stocks due to noise (price

uctuations) and not catalyst events,
fundamentals, or technicals

Trading when they’re bored or on tilt

Desperation (buying a bunch of obscure stocks

in an attempt to hit the “lottery”)

But what are the consequences of having an excessive

desire to push buttons and trading for the thrill of it?

First things rst, if you don’t already know, there is a

difference between pattern day traders and traders
with “small” accounts. The Financial Industry
Regulatory Authority (FINRA) – a self-regulatory
organization for the market – states that a pattern day
trader is any customer who executes four or more day
trades within ve trading days. Under FINRA rules,
traders who are considered pattern day traders must
have at least $25K in their accounts and would only be
able to trade margin accounts.

That said, if you don’t have $25K and conduct four or

more day trades within ve business days, you run the
risk of having your account frozen for a period. Not
only that, there are costs to trading and you’ll have to
check with your broker to gure out your fees.

For example, TD Ameritrade and E*Trade both charge

$6.95 per trade. That said, you’re spending $13.90
round trip (buying a stock and selling it). Now, if you’re
a beginner and able to put $25K, or more, into your
trading account, it could be dangerous. As a pattern
day trader, you’re allowed to trade as much as you
want, just as long as your brokerage account has at
least $25K in it at all times. That in mind, think of the
costs if you trade over 10 stocks a day. Now, if you’re
only right on your trades around half of the times, then
your trading account could dwindle rapidly.

That said, you should keep a log of your activity. All

brokerage rms have this. When you’re rst starting to
trade one of the problems is guring out how
frequently you should trade stocks. This all depends on
your personality, I can’t tell you how much you should
be trading since your schedule will differ from others.
I’ll go over how you could prevent yourself from
overtrading when we discuss ways to avoid the seven
deadly trading sins.

Now, some ways to know if you’re overtrading is:

Having extremely high trading costs on a daily

basis.

You feel the need to constantly trade.

You’re impatient and just want to trade for the

thrill of it.
 Not developing a plan before you enter a trade.

Taking a trade that causes you to take too much

risk in relation to your risk pro le.

Moving on, this brings us to the next deadly trading

sin: greed.

Greed
Excessive Desire to Make Money

G
reed is good only up until a certain point. So
many ex-traders have walked into the market
with just the desire to acquire wealth. There’s an old
Wall Street adage that goes like this, “Bulls make
money, bears make money, pigs get slaughtered.” Unlike
bulls and bears, “pigs” are traders and investors whose
primary goals are to make the most amount of money
as fast as possible. That said, piggish traders often
overlook risks and make irrational trading decisions
without doing proper research.

If you’re too greedy, it will affect your trading

performance. The dotcom bubble is a great example of
why you should avoid this trading sin.

Take a look at the Nasdaq-100 Index – which primarily

tracks technology stocks.

It took just a couple of months for the Nasdaq-100

Index to double. During the dotcom era, nearly
everyone was buying internet-related stocks – many of
them were just startups with insane valuations just
because they had dot-com attached to their names.
Now, traders who were prudent and took pro ts at
some point when the bubble was in ating came out
richer. But what about mom-and-pop traders? Well,
they weren’t so lucky. A bulk of those internet stocks
went bankrupt, leaving inexperienced traders with the
bag. The reason? They were too greedy.

Traders and investors kept buying internet stocks,

which fueled the meteoric rise in the Nasdaq-100
Index. In turn, this buying held up the index, leading
momentum traders to get in on the action.
Consequently, this led to many technology stocks to be
grossly overvalued. That said, the market started to
realize this and market participants realized many of
those dotcom darlings were duds.
Here’s a look at what happened when the internet
bubble popped.

More recently, we witnessed a bubble in the

cryptocurrency market. People who had no experience
in the markets and didn’t understand how digital
assets functioned were buying Bitcoin, Litecoin,
Ethereum, you name it. They entered into a market
with one thing in mind: to make as much money as
possible and retire because they heard teenagers were
becoming millionaires in a matter of months.

What they didn’t realize was they were chasing Bitcoin.

Heck, some even bought the top at around $20K. Those
who bought and held suffered, as Bitcoin lost over 70%
of its value in a short period. Those who were not
greedy survived the turmoil.

That said, being driven by greed will most likely cause

you to make irrational decisions, like chasing a stock or
asset that doubled in a short period – thinking it could
run even higher… only to witness the stock go against
you and your account dwindle.
Let’s move onto the next sin: sloth (laziness).

Sloth
Laziness

L
et’s face it, we’ve all procrastinated at one point
or another. Now, if you have sloth (the reluctance
to do your own due diligence), it can and will hurt you.
If you’re serious about trading and building wealth, it’ll
take time and dedication.

The last thing you want to do is go into the trading day

and start blasting orders to buy stock without being
prepared. What’s worse is many beginners don’t learn
a consistently pro table strategy or the trader’s
mindset before they start trading stocks.

Think about it like this, when you’re in school and

want to excel in a class, you study and do your
homework. You don’t push it until tomorrow. This is
very applicable to trading, as the Oracle of Omaha
Warren Buffett once stated, “The more you learn, the
more you earn.”
Now, new traders often get overwhelmed and don’t
conduct due diligence before entering a trade.   This
could be detrimental to your account. You see, doing
your homework should help you develop the
knowledge of trends, how data releases affect stocks,
trading patterns, institutional buying, and earnings,
just to name a few.

That said, if you constantly stay current with market

news, politics, economic indicators, company-speci c
news, and catalyst events, you increase your chances of
building wealth over time. When you have the habit of
conducting your own due diligence and taking notes,
you get an idea of which catalysts are positive for
stocks. In turn, you’re able to develop your own trading
style.

For example, when I rst started out to trade stocks, I

focused on what I know – biotech stocks. However, I
learned the basics of the market, chart patterns,
fundamentals, and catalyst events. I realized you can’t
just trade biotech stocks without doing your
homework. You see, if you don’t conduct your due
diligence, chances are you’ll miss some amazing trades
or worse… like buying a stock and holding it into a
data release, which is typically a low-probability trade.

Now, there are a plethora of examples in which not

doing your homework would’ve ruined your trading
career.

Check out this hourly chart of the CBOE Volatility

Index ($VIX) between January and early-February
2018.
When experienced traders saw this extreme move in
volatility, they actually decided to short volatility.
Now, for those who don’t know, you could only gain
exposure to the VIX – which measures the expected
volatility over the next 30-days in the S&P 500 Index –
through options, futures, or exchange-traded products.

Now, prior to this, the short volatility trade was

working well, as we saw the market making all-time
highs. However, some catalysts hit the tape, and the
VIX actually nearly tripled overnight.

A lot of beginners were long VelocityShares Daily

Inverse VIX Short-Term ETN (XIV) into this move
because they heard someone say, “If you buy and hold
XIV, it’s easy money.” Well, if they had done their own
homework, they would’ve saved a lot of money.

You see, XIV was an exchange-traded note (ETN) that

tracks the inverse of the daily percentage moves of an
index holding futures contracts on the VIX with an
average maturity of 1-month. In other words, if
volatility doubles overnight, this product would cease
to exist. If those traders would’ve just read the
summary prospectus, they would’ve realized the issuer
of the ETN was going to redeem XIV at an unfavorable
price.
Here’s a look at XIV when the VIX exploded in
February 2018.

Heck, even professional traders failed to do their

homework.

You see, had they known that the issuer would redeem
the shares if XIV loses more than 80% of its value. That
said, there was a lot of activity in the after-hours
trading – many of them were buying XIV because they
thought the markets were broken. Those who bought
kept buying XIV did not understand the product, and
shouldn’t have been trading it whatsoever.

Now, it’s not hard to conduct your due diligence. There

are tons of free websites, such as Finviz, which offers
charts, lters, news, analyst recommendations, and
many other powerful trading tools. You could also look
to Bloomberg or CNBC for your news. Now, if you just
want to learn the basics, you might want to consider
nding a mentor, just as I did.

That said, let’s take a look at the fth sin: Wrath

(Trading when you’re on tilt). If you commit this sin,
it’s going to hurt you because you’re making decisions
based on emotions, not on research and due diligence.

Wrath
Trading on tilt

I
f you’ve ever played poker or watched the World
Series of Poker, you’ve probably heard someone say,
“I’m going on tilt.” Well, this could happen to you when
you’re trading. For those of you who don’t know what
going on tilt, or trading on tilt, mean – it’s simply
when you allow anger and frustration to dominate your
process, causing you to make irrational decisions. In
other words, it means you’re letting your emotions get
to you rather than trusting your strategy and process.

Now, you’re probably wondering,

“Why do people go on tilt?”

In general, people become frustrated when an obstacle

prevents them from reaching the desired outcome. For
example, people can get frustrated when they’re stuck
in traf c or on the train preventing them from getting
to work on time. You see, you have to understand what
gets people frustrated before you can apply this to
trading.

First, you want to identify the factors that could affect

your emotions. For example, sometimes, frustration is
caused by our expectations. Beginner traders often
have unreasonable expectations, such as buying a
stock because their friend said it was a good
company… only to see the stock sell-off.

Now, when they witness this selling pressure, they’re

probably buying more shares to get a “better average
price.” That’s the wrong idea. You see, beginners have
the mindset that if they get a better entry price, they
would make more money if the stock moves to their
favor.

If you cannot control your expectations, you have a

higher probability of trading on tilt and damaging your
account. Now, what’s the worst part about committing
this deadly sin?

You derail your learning. Think about in school when

you had a bad teacher, you probably didn’t learn too
much in that class. You see, when you’re frustrated or
emotional, it makes learning how to do something
seem like a boring chore. On the other hand, when
you’re able to control your emotions, you immerse
yourself in the markets and fall in love with the
process.

Don’t get me wrong, going on tilt happens to the best

of us, but there are ways to remedy this sin.
Some traders will choose to walk away for a few
minutes if they feel their emotions are overpowering
and causing them to make irrational decisions. Others
will just completely stop and quit for the day. Basically,
you need to gure out what makes you tick and
frustrated when you’re trading, and write down how
you could remedy this problem. Now, we’ll go over this
in detail after we discuss the last two sins: envy and
pride.

Envy
Focused on what others are doing

E
nvy may be one of the worst of the seven deadly
trading sins. You see, envy occurs when we see
someone make money on a trade and desire to have
what they have. This leads traders to just simply copy
these traders approach and try to gure out how they
made money. Moreover, it causes traders to buy and
sell stocks, options, and exchange-traded funds (ETFs)
for all the wrong reasons. Consequently, those who
commit this sin often set themselves up for failure.
Many investors and traders select strategies, stocks,
and ETFs based on recent strong performance. They
typically have the feeling that they’re missing out on
great returns. That’s what many call FOMO, which is
driven by envy. Thereafter, they might chase and
follow these stocks or strategies, hoping they will make
money just as the others did. Chances are, they will
have a tough time repeating others’ success.

The problem isn’t copying other traders’ ideas and

strategies, the problem is they don’t make the ideas
and strategies their own. You see, what copycat traders
don’t know is the fact that the person they are copying
invested hours of time researching and are well
prepared if there is a negative catalyst. Heck, they
might have hedges in place too. That said, if you are
replicating someone’s ideas just to try to have the
same success they had, stop that.

Don’t get me wrong though. When you’re rst starting

out, it helps to watch how an experienced trader
develops a trading plan, and you may want to copy
them for a couple of your rst trades with just a few
shares to learn the process. Thereafter, if the trade
worked or didn’t, you would want to ask your mentor
questions. However, you have to be mindful that you
need to make the strategy or trade your own.

You see, when you copy someone, it’s unlikely you will
get the same entry price as them. Moreover, you may
not have the same risk tolerance and goals as the
trader you copied.

Here are some problems you might run into when you
envy another trader’s success:
Envy taps into your competitive instinct
when it shouldn’t. You see, being competitive
is great sometimes, such as sports or in school.
However, with trading, being overly competitive
forces you to hold onto losing trades and even
buy too many shares just to be in line with the
person you’re copying.

Taking unnecessary risks. When you envy a

trader and copy their trades, you lose sight of
your risk tolerance. For example, let’s say you
copy a trader who understands volatility very
well and buy an exchange-traded note (ETN)
tracking the VIX. Now, this trader will obviously
have a different risk tolerance than you if you’re
risk-averse. In other words, some traders who
can’t stomach risk will still trade will still buy
the ETN even though it doesn’t t their risk
pro le.

Even if a speci c strategy or trade offers

attractive returns, you need to know how much
money you could lose if the trade goes sour.

Developing the herd mentality. Beginner

traders often make the mistake of blindly
following the herd. Consequently, they end up
chasing stocks, getting bad entry prices, and
making irrational trading decisions. You see,
there is a lot of pressure when you hear all the
talking heads and other traders talking about a
stock. In turn, this brings about FOMO, and
we’ve already seen this herd mentality earlier
actually.
If you recall, when we discussed the dotcom bubble –
traders had the herd mentality then. You see, traders
and investors poured large amounts of money into
dotcom stocks – even though the fundamentals and
business models were not nancially sound. The
reason why many people fueled the explosive move in
tech and internet names was due to the herd
mentality. In other words, since so many investors
were long internet names, it reassured them that
“nothing would go wrong.” Well, we can clearly see
what happened with that:

You see, when you develop the herd mentality, it

actually pushes you to commit another deadly sin –
being too greedy.

Now, it’s very easy to envy traders and be led astray.

When someone lets you know about their positions, it
doesn’t mean you should follow them. Maybe they’re
bouncing ideas, and want to hear your opinion. It’s up
to you to develop your own thinking and opinions on
trade ideas and see if it ts your risk pro le. Focusing
on strategies that work, and making those strategies t
your personality and style help to prevent you from
feeling envious of what others are doing.

Last, but not least, this brings us to the last deadly sin:
pride. This is another sin that could cause you to blow
up your trading account. Heck, we’ve seen some
experienced traders commit this deadly sin before.
After we discuss this last deadly sin, we’re going to get
to the fun part and discuss “Tips to Prevent Traders
From Committing The Seven Deadly Trading Sins.”

Pride

H
aving pride is great in other aspects of life, but
when you’re trading stocks and options, this is
something that could lead to failure. When your ego
gets in the way, you’ll most likely end up making a
costly trading or investment decision. Although
trading stocks involves a certain degree of con dence
in your strategies… there’s a ne line between
con dence and being arrogant. Con dence allows you
to ride out the noise and little bumps and look at the
big picture. On the other hand, when you are arrogant,
it’ll lead you to hold onto the losers and be stubborn –
thinking everyone else is wrong.
The thing is, as a trader, you shouldn’t think you are
smarter than the market and just because you see
stocks making irrational moves, it doesn’t mean you
should take the opposite side of the trade right away.
You see, the market can stay irrational much longer
than anyone can stay solvent. When you have too
much pride, the market tends to humble you with
losses.

Now, here are some ways to identify if you have too

much pride in your strategies and ideas:

Trading without a plan. One major sign you

don’t have a trading plan is not using stop-loss
orders and trading without targets. This is a
clear indication that you have too much pride.
You see, when you trade without a plan, you’re
basically saying, “My trade idea will work and
nothing will go wrong, and I’ll always end up
making money.”

When you are too prideful and don’t have a

trading plan, you actually commit some other
deadly sins, such as lust (falling in love with or
getting married to stocks), wrath (trading on
tilt), and greed. For example, when you buy a
stock and it starts to go against you, you would
probably buy more to get a better average price.
Consequently, even though you are wrong, you
are married to the position and can’t let go.
Moreover, you may be making your subsequent
trade decisions based on emotions.

Not only that, if the stock starts reversing and

moving in your favor, you might actually buy
more because you may have endured a lot of
pain. Thereafter, you are actually up in the
trade, you might become greedy and hold onto
the position longer than you should because you
don’t have a set target.

Becoming a deer in the headlights when a

stock goes against you. Unsuccessful traders
often become a deer in the headlights when a
trade goes against them. You see, they’re lled
with so much pride that they can’t even fathom
the thought that they’re wrong. Rather than
having a stop-loss order in place and taking a
small loss, they end up holding onto the losing
position, hoping the trade will eventually work
to their favor. Consequently, they end up tying
up their buying power in a losing trade, causing
them to potentially miss better setups.

Never learning from mistakes. Successful

traders learn from their mistakes, and journal
their trades, no matter what. Prideful traders
rarely admit they’re wrong and rarely take small
losses. Instead, their pro t and loss go through
big swings… all you really see is massive losers
and a few winners here and there.

In their mind, they think, “It doesn’t matter if the

stock is moving against me, I’m right. The stock
will turn around.” Before they know it, the pain
gets unbearable and they’re forced out of their
position and take a massive loss. Rather than
 writing down their mistake, they will just say,
“That was some BS right there. I was right.”
Thereafter, they’d go around looking for another
trade.

No one is right 100% of the time. It’s okay to

make mistakes and learn to be humble. If you
lose on a trade, it doesn’t necessarily mean your
strategy is bad, it could mean you were just on
the wrong side of that trade. However, you have
to learn from those mistakes and be exible and
remain nimble with your positions.

That said, let’s look at one investor who may have been
too prideful in his trade idea.

If you were in the trading world in 2015, you probably

heard of Valeant Pharmaceuticals (VRX). Well, the
company is no longer trading under that name
currently… it’s actually trading under Bausch Health
(BHC).

Valeant Pharmaceuticals was a company lled with

negative catalysts. VRX had a very questionable
business model of one of its business. Not only that,
the U.S. Securities and Exchange Commission (SEC)
was investigating executives at Salix Pharmaceuticals
– acquired by Valeant in 2015 for a whopping $11
billion. The company had improper disclosures and
accounting issues. Despite these ongoing allegations
and investigations, Pershing Square CEO Ackman
became the second largest shareholder.
Now, being prideful just in one trade could ruin a
portfolio.

Back in March 2015, there were reports that Ackman

acquired a $3.3 billion stake – or 5% of VRX at the
time, making Ackman’s Pershing Square the fth
largest shareholder.

Here’s a look at VRX (now trading under BHC) on the

daily chart.

A few weeks after his initial purchase, he increased his

position and held over 19M shares. The position in
VRX made up 25% of Pershing Square’s entire
portfolio. Initially, this looked like a great purchase.
The stock had strong earnings, beat analyst
expectations for the rst half of 2015.

Things took a turn for the worst during the second half
of 2015. In August, VRX’s business practices were
called into question. Moreover, this was the year when
Presidential candidates were running major
campaigns, many called for changes in predatory drug
pricing.
In late September 2015, the Democrats were asking
Valeant Pharmaceuticals for the reasons behind its
price hikes in two heart drugs. Now, rather than exiting
his position based on these string of negative catalysts,
Ackman did not take a loss.

He was simply too prideful and did not want to hear

what anyone wanted to say about his position unless
they were good comments.

Now, on October 5, 2015, Deutsche Bank analyst

uncovered the fact that Valeant Pharmaceuticals raised
the prices on 54 other medications (not just the two
heart drugs) by an average of 66%, a lot more than the
rest of its competitors.

Even this research didn’t stop Bill Ackman from

realizing he may have made a mistake. Rather than
taking the loss, Ackman actually publicly defended the
company, saying the company spends tens of billions
of dollars funding drug research. Moreover, he noted
“Valeant doesn’t need to improve its business model…
What it needs is better PR.”
However, if Ackman had done his homework, he
would’ve seen that VRX only spent $334.4M on
research and development (R&D) in 2015.

That was just around 3% of the company’s revenue at

the time. Yet, he was telling people they spent billions
on R&D.

His efforts to defend VRX fell by the wayside.

Fast forward a few weeks, Ackman increases his stake,

bringing his total stake to 21.6M shares. Now, the
company had lost over $1B on the VRX investment.

Now, Citron Research – run by an activist short-seller

Andrew Left- revealed some information about VRX
and made a compelling argument the company was
committing accounting fraud.

Instead of stopping out of the position and conducting

his own due diligence, Ackman called the Citron’s VRX
report erroneous. However, Citron’s investigation into
Valeant Pharmaceuticals sparked a Wall Street Journal
investigation into VRX’s practices.

Now, the Wall Street Journal uncovered the fact

Valeant employees were frequently involved with
Philidor operations – even going as far as using fake
aliases like Peter Parker to hide their identity. Even
with all these ndings, Ackman held a conference call
to defend the company but came off as naive about
Valeant’s operations.

Fast forward a few months, Ackman took it on the

chin, after the company reported weak earnings and
actually cut its revenue guidance.
The fundamentals weren’t agreeing with Pershing
Square’s long position. Despite having unrealized
losses of over $650M, Ackman still held onto his
position. Instead, he sold a portion of Pershing
Square’s top holdings, like Canadian Paci c Railway
(CP), Air Products & Chemicals Inc. (APD), and
Modelez International (MDLZ) – which are considered
blue chip stocks and core holds.

Needless to say, Bill Ackman’s pride got in the way and

caused him to not conduct his research, trade on tilt,
become greedy, fell in love with the stock, and even
overtraded the stock.

The rst time he ever sold his shares was in December

2016 in order to generate a tax loss for Pershing
Square’s investors. However, the hedge fund still had a
7.8% stake in VRX.
By March 2016, VRX lost over 90% of its value since
Ackman entered the trade. Consequently, Ackman had
to swallow his pride and call it quits.

That said, Pershing Square locked in a $4B loss and its

value fell by 20% that year. Now, despite his massive
mistake, Bill Ackman faced facts and noted the
mistakes he made.

Here’s a look at his statement for his performance for

the year.
 Source: Valuewalk / Pershing Square

That said, there are some key takeaways from this

example:

Conduct your own due diligence.

Have a trading plan in place so you know where

to take pro ts and stop out in case things go
sour.

Don’t fall in love with a stock.

 Have proper risk management tools in place.

Learn from your mistakes – which Ackman did.

This is what separates experienced and
successful traders from unsuccessful ones. You
see, even successful investors make mistakes,
but they don’t just walk away and not learn
what they did wrong.

Now that we’ve gone over these seven deadly trading

sins, it’s up to you to remember and understand them.
Heck, maybe you make a post-it note of these sins and
stick them to your trading screen so you don’t forget
them.

Finally, this brings us to some tips to help you from

committing these seven deadly sins.

Tips to Prevent
Traders From
Committing The
Seven Deadly
Trading Sins
S
ince some of the seven deadly trading sins
intertwine with each other, it’s actually pretty
simple to avoid them. The rst way to prevent yourself
from committing these sins is to develop a trading
plan.

TIP #1 – Plan the trade, and

trade the plan
Now, when you have a trading plan and stick to it, it
prevents you from committing lust, greed, wrath,
sloth, pride, envy, and glutton.

You’re probably wondering, “Well,

how exactly does that help?”

First, you would be conducting your due diligence to

develop your trade idea. Thereafter, you would write
down: thesis, your expected entry price, areas where
you may add to your position, where you would take
pro ts, and where you would stop out. If you think
about it, all of the examples of traders committing sins
shown earlier could’ve been avoided if they just had a
plan.

For example, had Bill Ackman actually had a plan, he

could’ve avoided the $4B loss.

I’m not going to preach and tell you to develop trading

plans, and not do it myself. For the most part, I have
two types of trades for one of my pro t buckets. Now,
pro t buckets are simply different strategies I use to
extract capital from the markets. For example, using
catalyst events to trade biotech stocks is one pro t
bucket, while another is trading options.

Now, here’s a look at how I write my trading plans –

which gets sent out to a community of traders. Take a
few minutes to read through these trading plans (don’t
worry if you don’t understand some of the terms)… the
whole idea is to get you into the mindset of creating
plans.

“
Good morning,

I sold EARS yesterday for a nice 20% gain. Really nice

trade there guys! The portfolio has contracted, and it’ll
now likely start to expand.

A lot of our names are doing very well, and I encourage

you to use the buy, pro t, and stop zones to be
independent and plan your own trades!

This weekend will be a big overhaul on the watch list for

me. We enter the fourth quarter on Monday, so new
things will be in play!

Charts, commentary, and target range on Catalyst Swings

all are updated on Monday mornings.

Catalyst Swing names (1 – 4 week holds) I am

watching…

Cempra (CEMP)

Catalyst Dates: Phase 2/3 data for Taksta (antibiotic) due

out near the end of the year.
Buy Zone: $3.00 to $3.30

Pro t Zone: $4.00 or higher

Stop Zone: 2.75 or below

Agenus (AGEN)

Catalyst Dates: October 24 FDA approval date for

Shingles.

Buy Zone: $3.80 to $4.10

Pro t Zone: $4.50 or higher

Stop Zone: 3.60 or below

Heron Therapeutics (HRTX)

Catalyst Dates: November 12 FDA approval date for
chemotherapy-induced nausea and vomiting.

Buy Zone: $14.80 to $15.20

Pro t Zone: $16.75 or higher

Stop Zone: 14.20 or below

Bellicum Pharmaceuticals (BLCM)

Catalyst Dates: Phase 1/2 trial data to be presented at

the ASH meeting on December 9-12. The abstracts for the
data are posted on November 1 online.

Buy Zone: $10.00 to $11.00

Pro t Zone: $14.00 or higher

Stop Zone: 8.50 or below

MediciNova (MNOV)

Catalyst Dates: Phase 2b progressive multiple sclerosis

data to be presented on October 28 at a medical meeting.

Buy Zone: $5.20 to $5.50

Pro t Zone: $6.25 or higher

Stop Zone: $4.80 or below

Prima Biomed (PBMD)

Catalyst Dates: Phase 1 cancer data due out on October

31. Also safety data from Phase 2B breast cancer trial due
out in the fourth quarter.

Buy Zone: $1.55 to $1.65

Pro t Zone: $2.00 or higher

Stop Zone: $1.30 or below

I’ll be in touch again soon!

Cheers,

Kyle Dennis

What to all of these trading plans have in common?

”
They all have a chart (something I look at for my
entries and spot trend lines, support, and resistance), a
catalyst, a buy zone, a stop zone, and a pro t zone.
Keep in mind, your trading plans will differ from mine.
Maybe you want to be more detailed, or have a
different approach to trading. That is okay, just as long
as you write your thesis, where you want to buy, where
you would stop out, and where you would take pro ts.

It’s that simple.

Once you have a trading plan, it’s up to you to execute
and stick to it. You see, when you have a plan, you’re
less likely to commit lust and fall in love with the
stock. If the stock goes against you, and you did not
specify in your plan you would buy more, and it
reaches your stop area… you would just take the loss. If
you didn’t have a plan in place, maybe you would’ve
bought more shares below your stop area.

Moreover, it helps keep your expectations in check, so

you won’t be too greedy. As long as you have realistic
targets in place and stick to them, you probably won’t
hold onto the position too long, expecting a more
extreme move. Not only that, if you have a plan, you’re
less likely to get emotional or frustrated and trade on
tilt. Basically, having a trading plan in place could
remedy these seven deadly trading sins.

Now, I cannot stress this enough, so here’s a look at

some more trading plans. The more you look into
trading plans, the better it is for your trading.

Here’s a look at another set of trading plans that went

out to the trading community.

“
Good morning,

I hope you enjoyed the weekend! I continue to hold PSDV,

ECYT, PSTI, and MTNB as Catalyst Swing plays. My
philosophy is always to “buy on dips” and average into
these plays slowly.

So, as the days go by, I will be looking for spots to add to

each position ahead of their catalyst events.
*Important Jumpstart Guide Start*

There are two types of trades in this service: Catalyst

Swings and Biotech Breakouts. This is the Catalyst
Swing list!

Biotech Breakouts are 0 – 3 day holds and are

based mostly on technicals and charts. These are
extremely volatile and fast moving. These are best
for experienced and active traders who are up for a
bit more risk.

Catalyst Swings are 1 – 4 week holds and are

based on an upcoming event – like a data readout
or FDA approval. These are a bit slower moving
and are better suited for traders wanting to go for
a bigger move.

Both types of alerts are fantastic in different market

conditions.  When the market has a lot of momentum and
sentiment is fantastic, the Biotech Breakouts tend to be
the most pro table.  When this slow down (like how
conditions are now) the Catalyst Swings tend to be a bit
better with a “buy on the dip” mentality in my experience.

It is important to go through this Important Guide below

before getting too aggressive in any trades. And I always
suggest paper trading and proving to yourself that the
trading method is pro table before dipping your toes in.

*Important Jumpstart Guide End*

Charts, commentary, and target ranges on Catalyst
Swings all are updated on Monday morning.

New Catalyst Swing names (1 – 4 week holds) I am

watching…

Bellerophon Therapeutics (BLPH):

Catalyst Dates: Bellerophon’s lead product candidates

are INOpulse, a pulsatile nitric oxide delivery device,
which is in Phase 3 clinical trials for the treatment of
pulmonary arterial hypertension; and in Phase 2 clinical
trials to treat pulmonary hypertension associated with
chronic obstructive pulmonary diseases and pulmonary
hypertension associated with idiopathic pulmonary
brosis. Topline data from this trial is expected by mid-
2017.

Buy Zone: Up to $1.50

Pro t Zone: $2.00 or higher

Stop Zone: Under $1

Auris Medical (EARS):

Catalyst Dates: The top-line data from the AM-111 trial

is expected by 3Q 2017.
Buy Zone: Up to $0.80.

Pro t Zone: $1.00 or higher

Stop Zone: Under $0.60.

Inotek Pharmaceuticals (ITEK)

Catalyst Dates: Phase 2 data for glaucoma is due mid-

2017.

Buy Zone: Up to $2.00

Pro t Zone: $2.50 or higher

Stop Zone: $1.45 or below

Catalyst Swing names (1 – 4 week holds) I am

watching…

Immune Design (IMDZ):

Catalyst Dates: Two Phase 2 cancer data readouts at
ASCO 2017 (June 2 – 6) with abstracts online May 17.

Buy Zone: Up to $6.50

Pro t Zone: $7.50 or higher

Stop Zone: Under $5.50

Voyager Therapeutics (VYGR):

Catalyst Dates: Phase 1b data due in the middle of 2017.

Buy Zone: Below $11.00

Pro t Zone: $13.00 or higher

Stop Zone: $8.00 or below

Biotech Therapeutics (BTX):

Catalyst Dates: Phase 2 data for dry AMD due May 7 –
11.  Phase 3 data for skin contours due mid-2017.

Buy Zone: Up to $3.20

Pro t Zone: $3.75

Stop Zone: $2.60 or below

Corium International (CORI):

Catalyst Dates: Phase 2 data update in the middle of the

year.

Buy Zone: Up to $4.20

Pro t Zone: $5.00 or higher

Stop Zone: $3.50 or below

Curis (CRIS):
Catalyst Dates: Phase 2 data update in the middle of the
year.

Buy Zone: Up to $2.60

Pro t Zone: $3.20 or higher

Stop Zone: $2.20 or below

Pluristem Therapeutics (PSTI):

Catalyst Dates: In May or June the company will report

Radiation Trial data. Late 2017 company will report
Phase 2 Intermittent claudication data.

Buy Zone: Up to $1.40

Pro t Zone: $1.95 or higher

Stop Zone: $1.10 or below

Endocyte (ECYT):

Catalyst Dates: The company with be at the ASCO

conference from June 2 to 6th and will be presenting
updated Phase 1 lung cancer and prostate cancer.
 Abstracts come online for that conference on May 17,
which will also give us a little insight into the data.

Buy Zone: Up to $2.30

Pro t Zone: $2.60 or higher

Stop Zone: $2.00 or below

Matinas Biopharma (MTNB):

Catalyst Dates: Near-term events include top-line results

from the Phase 1 study of MAT2501 in Q1, top-line
results from the NIH-sponsored Phase 2a study of
MAT2203 in immunocompromised patients in H1, top-
line results from the Phase 2 study of MAT2203 in
patients with vulvovaginal candidiasis in H1, and the
start of a tolerability/PK study of MAT2203 in patients
with a hematologic malignancy in H1. Antifungal
MAT2203 has a Quali ed Infectious Disease Product
(QIDP), a Fast Track Review, and an orphan drug
designation from the FDA.
Buy Zone: $2.50 – $3.00

Pro t Zone: $3.90 or higher

Stop Zone: $2.25 or below

Adamis Pharmaceuticals (ADMP):

Catalyst Dates: The company has an FDA approval date

on June 15.

Buy Zone: Up to $3.70

Pro t Zone: $4.50 or higher

Stop Zone: $3.30 or below

Neothetics (NEOT):

Catalyst Dates: Neothetics initiated a mid-stage study of

lead product candidate LIPO-202 for the reduction of
submental subcutaneous fat (fat under the chin) late last
year. Data is expected to be available in late Q2 2017.

Buy Zone: Up to  $1.90

Pro t Zone: $2.50 or higher

Stop Zone: $1.50 or below

Neos Therapeutics (NEOS):

Catalyst Dates: The company has an FDA approval date

on June 19.

Buy Zone: Up to $7.20

Pro t Zone: $7.70 or higher

Stop Zone: $6.45 or below

I’ll be in touch again soon!

Cheers,

Kyle Dennis

”
TIP #2 – Develop A Rules-Based
Approach
”
When you’re trading stocks, you should follow a rules-
based approach to control your behavior. Most
beginner traders just go out and start buying 1,000
shares of a stock because they heard someone say,
“This stock is hot, it’s going to make you rich overnight.”
Only to get hammered by the market and take a
massive loss. You see, if you have set rules in place it’ll
also help to prevent you from committing those deadly
sins.

For example, let’s say you’re a beginner trader with a

$10K account. Some rules you might have in place
would be:

Trading stocks under $20, and not allocating

more than $500 per position. In other words,
you’re not putting all your eggs into one basket.
That said, if you’re trading a $10 stock, that
means you would only be able to buy a
maximum of 50 shares. Until you start to
consistently make money trading with a
maximum capital of $500 per position, you
would not increase your position size.

If you do in fact become consistently pro table,

you could increase your capital per position to
say $1,000. Keep in mind, everyone’s risk
tolerance is different, and you might not be
comfortable with placing that amount of money
into a stock.

You could also follow an equal-share approach.

In other words, you would set a maximum
 position size of, say 200 shares. You would not
increase your position size until you start
becoming pro table.

Only risk $100 per position. This means you

would not lose more than $100 per position. If
you reach your loss limit in the position, you
would stop out the trade and be at (no position
in the stock.)

Do not enter more than 5 trades in a given week.

Only trade between 10:00 AM and 12:00 PM.

Again, your rules may differ from this, so here’s what

you need to ask yourself:

What is my risk pro le?

Do I like taking risk in an attempt to generate

pro ts? Or do I like to be risk averse and generate
consistent pro ts?

How much am I willing to risk per trade?

What times of day could I trade comfortably?

Maybe you nd that trading right around the
open gets you into trouble.

What’s my max position size? (Keep in mind,

beginners should learn to generate consistent
pro ts from a strategy before increasing their
position size.)
 Which strategy will I use to trade? Will I use a
fundamental analysis approach, a technical
analysis approach, or a combination of both?

Which asset classes will I trade? Will I trade

stocks, options, or both?

When you gure out your rules, it’ll also help you from
falling in love with stocks, overtrading, greedy,  envy,
having too much pride and being stubborn, and being
too lazy to do your due diligence.

TIP #3 – Journal your trades

A third tip would be to journal all of your trades,
whether it be good or bad. When you write down your
trades in a journal, it helps to keep a log of what’s
working and what’s not. Consequently, you would
realize the mistakes you are making, and gure out
ways to tweak your strategy. You can only get better at
trading and prevent these trading sins if you learn
from your mistakes.

That said, here are some questions you should ask

yourself when journaling your trades:

Did the trade work to my favor?

Did I stick to my trading plan?

What strategy did I use? Was it a momentum

strategy, or did I buy the stock because of
fundamentals?

What was my entry, stop, and target prices?

 Did I have an edge? In other words, what was
your advantage in the trade? For example, Jason
Bond’s edge is in patterns, values, and catalysts.
 On the other hand, Jeff Bishop’s edge is in the
options market and generating 100%+ winners
in crashing stocks. While my edge involves a
combination of a variety of factors, such as
insider transactions, growth prospects, news
(catalyst events), institutional buying,
technicals (chart patterns), and earnings. I call
my edge IGNITE when I trade options.

What could I have done better?

How many shares did I buy?

How was I feeling today? Did I get enough sleep

last night?

Did I workout today?

Now, you can make your journals extremely detailed,

or just a few lines. For example, here’s a look at a
“journal” that I sent to members.

“
Good afternoon,

I wanted to update you all on our AMRN trade.

Remember, we sold these puts to open to collect premium.

I sold 20 contracts at .76, so that is about $1,500 in

premium that will expire today.
Since the ARMN stock is trading at $17.50 as I type, it is
$2.50 over our $15 strike price.

That means, that at the end of trading today, these

should be expiring worthless!

No action needs to be taken.

They will expire, you keep your premium, and we book a

100% win!Cheers,

Kyle Dennis

Now, when you’re rst starting out, I suggest you be

”
extremely detailed and answer all of the questions
shown earlier, and any more you can think of. This is
nearly how all successful traders trade. They have
trading plans in place, follow a rules-based approach,
and journal all of their wins and losses.

That said, let’s recap what we went over in this eBook

so you can solidify what you learned about the seven
deadly trading sins.
 Conclusion

N
ow, we went over a lot about the seven deadly
trading sins, and even showed you some
examples of what would’ve happened if you committed
them.

Let’s take a look at these sins again and what they

mean in the trading world:

1. Lust (Falling in love with stocks)

2. Glutton (Overtrading)

3. Greed (Excessive desire to make money)

4. Sloth (Not conducting your due diligence and

failing to learn the process)

5. Wrath (Trading on tilt and making decisions

based on emotions)

6. Envy (Copying traders and not learning how to

develop their own style and process)

7. Pride (Being stubborn and not admitting you’re

wrong… we saw how bad things could get if you’re
lled with pride)

Now, always trading with a plan, following a rules-

based approach, and journaling my trades were big
proponents that led me to turn the corner… going from
a struggling trader to making over $5M in just a few
years. No, I’m not saying that to make you feel
envious. You see, when you’re able to avoid these
seven deadly sins, you can actually stay in the game
long enough to learn different strategies and develop
your own pro t buckets. That said, study these seven
deadly trading sins and practice how to develop your
own trading plans, a rules-based approach, and
journaling.