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3 Critical Mistakes That Hold Traders Back

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Written by Timothy Sykes
Updated 11/30/2022 6 min read

Turning a small account into $1 million doesn’t happen overnight.

There’s no magic indicator you can drop in your charts that will suddenly start printing profits.

If you want to get there, you cut the lowest-hanging fruit…

The common mistakes that plague every trader.

I know that sounds cliche…

But with over 20 students from my Millionaire Challenge over that $1 million mark, the proof is in the pudding.

Clay Ruf hasn’t hit the mark yet, but he’s darn close at just over $800,000.

Like many of my success stories, he spent the first couple of years focused on study rather than profits.

He waited patiently for the moment to strike.

That came in late 2020 when the Fed juiced stocks and made for one of the best trading bonanzas in years.

But it wasn’t just the market conditions that helped him find his stride.

Clay worked meticulously at rooting out all the common mistakes from his trading.

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Speaking at our trading conference this year, he covered five critical mistakes traders make that hinder their progress.

Some of these may sound familiar to you, while others may be totally new.

But I promise you that eliminating these problems from your trading will help improve your results.

#1 – Not Setting a Max Loss

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Sometimes trades get away from us.

It might stem from revenge trading or a stock that simply moves hard and fast.

At some point, you just need to throw in the towel for the day.

Otherwise, you could wipe out a month’s worth of gains in a day or even a few hours.

I watched several great traders get pummeled trying to short Intelligent Living Application Group Inc. (NASDAQ: ILAG), some losing hundreds of thousands of dollars.

Some brokers allow you to set a max loss limit for the day or week. Once you hit that level, they’ll cut you off, which can be a good option for newer traders.

It’s also worth considering a max dollar loss on each trade.

To improve his consistency, Bryce Touhey limited himself to a $2 max loss per trade for nearly two months!

Now, he’s on his way toward that million-dollar mark.

The point of all of this is to keep things from spiraling out of control.

Large losses hinder most new traders.

It’s why my number one rule is to cut losses quickly.

#2 – No Sizing Guidelines

whats good till cancelled order
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Say you had two trades you planned to take.

One had an entry of $0.037 with a stop of $0.034, and the other had an entry of $1.25 with a stop of $1.10.

How many shares should you take of each?

Everyone needs a clear set of rules to determine their position size based on volatility.

Trades with more volatility require small share sizes.

Most traders don’t think about this and put the same dollar amount at risk on every trade.

You have to adjust your size when a stock makes wider moves.

Similarly, if you scale in or out of trades, you need to consider the market conditions.

I’d be more apt to take a profit and let a bigger portion run during the 2021 bubble than I am today.

So, if things are going gangbusters, I might only take off 50% of my position at my main profit target, whereas today, I’d probably exit the trade completely.

#3 – Itchy Trigger Finger

artificial intelligence stocks under 10 to watch
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It’s easy to get FOMO or worry about profits getting away from you.

Patience isn’t easy.

And as Clay pointed out, waiting for your entry is tough.

But, he said he’d rather miss a trade holding out for his specific number than chase the stock.

I recommend this for newer traders.

It teaches discipline and helps you focus on making good decisions.

The same holds true for your exits.

It’s fine to cut losses quickly. However, you also need to give your trades a chance to work.

This balance doesn’t come naturally.

The best way to find it is by logging trades in a journal.

From there, you’ll be able to look for patterns and identify where and when to take a profit versus cutting it loose.

Final Thoughts

how to find short float
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Remove as many ‘in the moment’ decisions as possible.

Develop a robust plan and strategy ahead of time that tells you what to do when the time is right.

It might seem like I’m asking a lot.

But, if you want to meet the Millionaire Challenge, this is what it takes.


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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”