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Trading Recap

$400,000 Loss and Still Profitable

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Written by Timothy Sykes
Updated 8/5/2022 5 min read

Even the best of us take big losses from time to time. It’s part of trading.

The tweet I’m about to show you might seem negative.

But I assure you, it contains one of the MOST IMPORTANT lessons you will ever learn.

See all the trades my students, and I take here on profit.ly

These are some eye-popping losses, no question.

I couldn’t be prouder of these guys.

You see, they enter trades fully understanding that they might not always work out.

That’s why both Jack and Kyle are still well into the green for the year.

While it’s rare for my students or myself to take losses of this magnitude, even when they hit, they don’t make a huge dent in our overall performance.

I’m going to show you why that is and offer several techniques to keep any one loss from obliterating your account.

Unexplored Risk

A lot of folks will tell you to use the 5% rule, where no trade risks more than 5% of your total account.

That’s decent high level advice, but lacks nuance.

Some trades carry a higher risk than others.

That’s why I teach students my sliding scale methodology.

The scale is meant to help someone determine a given trade’s relative risk and profitability.

That information determines what size position I want to take.

Now, I want to take this to another level.

It’s fairly easy to think of most trades along a bell curve. In the middle, most trades carry the same amount of risk. At the ends, there are a few trades that carry high risk and low risk.

The reality of trading is slightly different.

You see, stocks movements have what’s known as ‘fat tail’ risk. Most of the time they move as expected. However, a few huge outlier moves are more common than they should be.

This isn’t something most people know.

And it’s why my students can capture massive wins and typically avoid large losses.

My Supernova pattern is a great example of where a stock makes an atypical move.

Most stocks that pop don’t become Supernovas. Yet, Supernovas happen far more often than they should.

Knowing this, I’m aware of and plan for possible huge moves.

Cutting Out Big Losers

The way I trade these days, I cut and run quickly if a stock doesn’t do what I want immediately.

It’s a bedrock principle I teach my students for one simple reason…

Most folks can’t handle big losses both mentally and financially.

Jack’s $400,000 loss is large. Yet, he’s made enough in the first half of this year to still be up hundreds of thousands of dollars.

He knows these types of losses are rare.

But he’s also completely aware they could happen again.

Just because something is rare doesn’t mean it won’t happen twice in rapid succession. It just means it’s very unlikely.

However, even if Jack took another loss of that same magnitude, he would still be up for the year.

In fact, he could take a dozen of these and still be up millions of dollars over his career.

Jack and Kyle both knew when they took the trade it carried high risk and high reward.

Sometimes, like with Lytus Technologies Holdings PTV. Ltd. (NASDAQ: LYT) it works out stupendously.

The profits from this one trade alone almost cancel out the $400,000 loss.

If you look through Jack’s trade history, you’ll notice something very similar to mine.

The majority of the trades are small wins and loss. Yet, he wins around 61% of the time, and tends to win more than he loses per trade.

Every student knows my #1 rule is to cut losses quickly because guess what…we all make mistakes.

So it’s best not to compound them.

Jack noted he shouldn’t have been in this illiquid stock with massive borrowing costs and slippage.

Rather than push himself harder, Jack stepped back from trading for a few days to collect himself.

He knows, as many of us do, that being in the right mindset is critical to trading effectively.

Managing Loss Tips

Before I let you go, let me offer a few methods to help you keep those big losses at bay.

  1. Cut losses quickly. In case I don’t say it enough.
  2. Set a daily or weekly loss limit
  3. Only put money in your trading account that you intend to trade and can afford to lose
  4. If you double your account, take a chunk out and set it aside. Don’t leave it in there and tempt yourself with larger and larger positions.
  5. Grow your position size slowly, deliberately, and ONLY when you’re ready (IE profitable).

I want you to stay safe out there. There’s a lot of money to be made, that’s for certain.

But in order to cash in on those profits, you need to survive.

—Tim


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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 (205) 851-0506 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”