Why Traders Take Bad Trades (and how to fix it)
Stockscores Foundation for the week ending August 16, 2026
In this week's issue:
In This Week’s Issue:
- Market Outlook – New Highs
- This Week’s Market Minutes video – Will You Trade the Stock Market 23 Hours a Day?
- Trader Training – Why Traders Take Bad Trades (and how to fix it)
- Strategy – Positive Weekly Patterns
Market Outlook – Summer Rally
Trading volumes are light, typical for the summer, but momentum remains positive. After some weak price trends in June and July, the market have resumed their upward trend, perhaps setting up for the typical summer rally in stocks.
Precious Metals and Mining stocks have broken their lengthy pullback as they have come back to the long term upward trend line, but I am concerned that this buyer enthusiasm will be short lived and fail to make new highs. It is a good sector for short term traders but longer term investors should be cautious.
Oil is very volatile which makes it difficult to predict but high oil prices continue to have a positive effect on the earnings of Oil companies. These stocks are worth holding but expect volatility around Iran headlines.
This Week’s Market Minutes Video – Will You Trade the Stock Market 23 Hours a Day?
The US stock markets are proposing an added overnight trading session that will extend the trading day to 23 hours. This will affect how and when stock traders can trade, with new halt rules for the overnight session. In this video, I highlight the changes, plus provide my analysis of the overall stock, commodiy, bond and currency markets. Finally, my trade of the week on ONFO.
CLICK HERE TO WATCH ON YOUTUBE
https://youtu.be/cMRJsMLfggQ
Commentary – Don’t Let These 5 Traps Ruin Your Trading
Traders usually take trades that do not meet their strategy requirements because emotion temporarily becomes more persuasive than the strategy. The problem is rarely that they do not know their rules. It is that, in the moment, something gives them a reason to justify breaking them.
A few forces are especially common:
- FOMO: A stock starts moving quickly and the trader fears missing the opportunity. The thought changes from “Does this qualify?” to “How can I get involved?”
- Recency bias: A similar-looking setup just produced a huge winner, so the trader assumes the next one will too—even though it lacks one or more required characteristics.
- Revenge trading: After a loss, the trader feels pressure to make the money back. That lowers the threshold for what counts as an acceptable trade.
- Profit-target pressure: If the trader wants to make $1,000 today, finish the week positive, or hit a monthly goal, they start searching for trades rather than waiting for trades.
- Boredom and the need for action: Sitting in cash can feel unproductive. Trading provides stimulation and a sense of control, so mediocre opportunities begin to look better.
- Overconfidence: A run of winners can convince a trader that their judgment is more important than the rules that generated the winning streak.
- Narrative bias: News, social media, analyst opinions, or a compelling story can make a stock seem attractive even though the price-and-volume setup does not qualify.
- Fear of previous regret: If the trader recently watched a stock explode after passing on it, they may lower their standards the next time so they do not experience the same regret.
- Rule ambiguity: Sometimes the real problem is that the strategy is not defined precisely enough. If the rules contain words such as “strong,” “good volume,” or “looks bullish,” the trader has plenty of room to rationalize a trade.
The common thread is rationalization. The trader starts with the desire to take the trade and then searches for reasons that make the decision seem legitimate. Good trading reverses that process: the rules determine whether a trade exists, and the trader simply executes the decision.
The best solution is therefore to reduce the amount of discretion required at the moment of execution.
A strategy should be converted into a binary checklist. Instead of asking, “Does this look like a good trade?” ask specific questions: Is volume above the required threshold? Is the price pattern present? Is the entry trigger satisfied? Is the stop location valid? Does the reward-to-risk meet the minimum? If one mandatory requirement is missing, there is no trade.
It also helps to separate finding trades from taking trades. During scanning, you can be creative and curious. Once a candidate is found, however, qualification should become mechanical. The stock must prove that it deserves your capital.
Another powerful technique is to record every trade as either strategy-compliant or non-compliant. Then track the results separately. Many traders discover that their strategy trades perform reasonably well while their discretionary deviations destroy a significant portion of their profits. Seeing that evidence makes discipline much easier because breaking the rules is no longer an abstract psychological problem—it has a measurable dollar cost.
You can go further and calculate something like:
Rule-Breaking Cost = P&L from all non-strategy trades
If you discover that your tested strategy made $40,000 during the year while your impulsive trades lost $18,000, the problem becomes obvious. You do not necessarily need a better strategy. You need to stop interfering with the one you already have.
It is also important to redefine what constitutes a good trade. A winning trade that violated your rules was a bad trade. A losing trade that perfectly followed a positive-expectancy strategy was a good trade. Judging yourself by the outcome of individual trades encourages rule breaking because bad decisions are occasionally rewarded. Judge yourself by your process instead.
A useful mindset is:
Your job is not to make money on the next trade. Your job is to execute trades that have positive expected value over a large sample.
That distinction removes much of the emotional pressure surrounding individual opportunities.
Finally, make doing nothing an intentional part of the strategy. There will be periods when no qualifying setups exist. Cash is not evidence that you are failing to trade. It means the market has not yet offered you an opportunity where your statistical advantage is present.
The objective is not to become better at resisting temptation through willpower. It is to build a process where there is very little room for temptation to influence the decision:
Define the setup precisely → identify candidates → apply the checklist → execute qualifying trades → reject everything else → review compliance afterward.
The strongest traders eventually stop asking, “Do I think this stock is going to go up?”
They ask, “Does this trade meet my strategy?”
That small change moves the decision away from prediction, emotion and opinion—and back toward probabilities and expected value.
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This week, I scanned the market for stocks making strong gains over the past 10 days and with a Sentiment Stockscore of 60 or higher. Here are three good weekly charts worth considering for longer term trades.
1. T.CHRT.CHR broke out two weeks ago and continued to be strong last week. While it is a bit overbought right now and likely to pullback in the short term, the long term outlook is good as long as the stock does not fall below support at $23.50.
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2. CCCCCCCC made a good pattern break in May, went quiet in June and July and is starting to turn up again. Must hold above support at $3.30.
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3. NMAXNMAX breaks out of an ascending triangle pattern with strong volume on Friday, setting up a good reversal pattern. Support at $7.50.
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