Stock Traders' Worst Enemies

Stock traders know that markets are driven by human emotion - fear and greed. But there are many other more subtle enemies lurking just beneath the surface that can prevent traders from reaching full profit potential.

High pain threshold
Many moves in the market are counter-intuitive, so the ability to sit tight is an asset. But the flip side of it is staying in losing positions longer, determined to "tough it out." The first loss is always your best loss. If you flee at the first sign of trouble, you may leave money on the table but you won't go broke.

Boredom
Dull markets nudge traders to act because they "should be doing something," which often leads to overtrading.

Over-excitement
The flip side of boredom: volatile markets make you think: "Look at all the money I could be making in these wild swings," and jump into the fray. The problem is that volatile markets are unpredictable, so unless you are a market maker or a specialist, the net results are often disappointing.

Doubt / lack of confidence
You think you know what you are doing. Most of the time. But every once in a while the market throws you a curveball, making you question what you know, how good you are, and even the validity of your trading system: "Did I do the right thing?" "Is it going to go up?" At moments like these, you are tempted to exit your positions to just "take a step back and take a second look." Alternately, doubt can paralyze you with inaction, making you miss profitable opportunities.

Overconfidence
The flip side of doubt: "Life is good; I know what I am doing, what's a small loss? - I'll be just fine..."

Impatience
Things in the market never happen at the pace at which you expect them to happen. The result is that if a stock does not do what you expect it to do by a certain date, you exit the position only to watch the stock soar a day or a week later. There is also the temptation to sell too soon to lock in the gains "while you still have them" because "things don't look right," or before the stock penetrates a major support level. The latter can be particularly frustrating with indices that often undercut a support level by a hair, clearing out accumulated stops, and then promptly turn back up.