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3 Rules I’m Following After My Biggest Loss Of The Year

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Written by Timothy Sykes
Updated 5/26/2023 6 min read

Even the most seasoned traders can slip up and make costly mistakes.

Last Friday’s $22K loss in EFTR is my most recent reminder.

Now, I’ve climbed back from losses bigger than EFTR.

And the way I plan to do it this time is by following these 3 rules.

There’s nothing fancy or overly complex about them.

But if you’re constantly finding yourself on the wrong side of your trades, you probably need to hear this too.

What I’m Not Doing…

My loss in EFTR is an absolute embarrassment.

Not only did I botch the entry, but I also botched the order size and then completely forgot to watch the news. The company announced an offering while I was long the stock.

Everything that could go wrong did.

This is a problem.

Why?

Because I’m typically making anywhere between $400 to $800 on my winning trades.

I need potentially several dozen winners to make up for that one loss.

And that’s simply how you DON’T want to play this game.

But that’s what you get when you break the most important rule.

#1 Cut Losses Quickly

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When a trade goes against you, it’s crucial to exit the position quickly before it can get any worse.

Doing so prevents a small mistake from turning into a potential disaster.

You see, I had the best intentions with EFTR.

But instead of buying 8,000 shares…I accidentally bought 80,000 shares.

I should have immediately closed out my position.

Instead, I was adding to my position as the stock kept declining.

Now, I’ve, in a way, screwed myself.

I have to be extremely careful of my risk management. One more bad loss like this, and I will be down on the year—something I don’t want to be.

This rule is non-negotiable.

I can’t break this rule going forward.

#2 Controlling Mistakes: Discipline Is Key

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Only a small percentage of my students go on to become millionaire traders.

Now, I have several theories on why this is…but I won’t get into it here.

But one of the key factors is discipline.

My top students and I constantly outperform most traders because we’re disciplined.

Of course, I lost my discipline in EFTR, and I’m now wearing a giant stain.

But the show must go on.

What will I do to get better, come back from these losses, and take my account to new highs?

Well, I need to focus on trading A+ setups.

One way I can do that is by reviewing my trades and ranking my top setups. If I’m finding success with a specific pattern, I should focus on that pattern.

But finding the right plays is just part of the battle. 

Your entry is probably even more important than your stock selection.

I’m often trading some crazy and volatile stocks. That’s why I need to be careful not to get whipped around.

To improve my odds, I often look for moments of weakness in the stock, specifically sharp panic sell-offs in the morning.

From there, I’m finding it easier to manage my trades.

In the case of EFTR, my entry was awful. I did not wait for a big enough sell-off.

That didn’t matter because I was also in the trade when they announced an offering, which gave me almost no chance to make money being long.

For me, the key to staying disciplined will be to constantly remind myself of my best setups and entries that give me a good risk vs. reward profile.

#3 Consistency Occurs When You Focus On Singles

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If you’re like most traders, you want to make those losses back quickly.

And if you let your ego get the best of you, you might find yourself in an even worse situation.

In the grand scheme of things, I can easily trade bigger to get my losses back.

But that would be dumb.

Why?

Because I’m not trading that good, and the market isn’t amazing.

You want to max size when you’re on top of your game, and the market feeds you opportunities.

Neither is true for me.

So I have to grind.

Focus on one trade, and try to make small wins.

Chip…chip…chip away.

It requires patience and discipline.

Most don’t have it.

Remember, it’s not about how big your winners are. It’s about keeping your losses in check.

When you have more winning trades than losing ones, there’s a strong likelihood your account balance will steadily grow. I know that’s how it’s been for me.

Final Thoughts

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It’s time to get serious.

My last two months of trading have been forgettable, to say the least.

But I’ve been at this for over 20 years…and I know this is part of the game.

Becoming a consistently profitable trader takes time. If you have time and a desire to learn and get better at trading, then do yourself a favor and CLICK THIS LINK.


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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

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* 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”