Seven Deadly Sins of Trading

One of the distinct privileges I have from doing this website is that I receive a lot of free books from publishers and authors who hope that I'll mention it in one of my posts. On average, I receive about two books per week, so you can imagine there's no lack of reading material on trading and investing in the Kirk household.

At a minimum, I do try to skim over most of the books I receive and it is always interesting to read others perspectives. For example, in one book I received recently, Boris Schlossberg wrote a chapter called "The Seven Deadly Sins of Trading." I'm a sucker for these kind of chapters, so I had to take a look to see what the author had to say. According to Boris, the seven deadly sins were:

1) No good reason to trade
2) Chasing price
3) Not letting profits run
4) Seeking high-probability trades
5) Assuming the trend is linear
6) No averaging down
7) Overtrading

I agree with most of these, especially number two (chasing price), number six (no averaging down) and number seven (overtrading). However, I did have a problem with one of his deadly sins - seeking high-probability trades.

Essentially, Boris thinks that since master hedge fund pro Steve Cohen (who runs one of the most successful hedge funds in history) makes the most money on only 5% of his trades, you should trade more like Steve and find "seek trades with greater payout potential but less accuracy." I'm not sure I agree with that.

While there is something to be said for spreading your bets and that every shot not taken is a missed opportunity, on the other hand everything I've learned is that picking your spots carefully makes a huge difference in the long run. Granted, I agree with his view that you should avoid "low-payout/high-probability situations." But, at the same time I do not think that seeking high-probability trades should qualify as a deadly sin.

It is always a tough balance between being too selective and not selective enough. In fact, I'd readily admit that I've been too selective in recent years and have missed opportunities to make money. But, I also put myself in the position where I don't lose money very often which is a higher priority for me at this point. We all have to trade in a way that matches our goals and risk tolerance so what is right for me, may not be right for you. Which is also why everyone's deadly sins will be unique and will prey on their own individual weaknesses.

After reading the chapter, I must also tell you about a funny discovery. Since I'm not familiar with Boris to any great extent (and I'm sure he is very good at what he does), I had to look him up to see if I could find other stuff Boris had written that I would find of interest. Very shortly within my research, I discovered that Boris is selling a book titled "High Probability Trading Setups." I had to smile when I saw that title in a book by a trader who also thinks that seeking high-probability trades is also a deadly sin. :)