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Trading Psychology

Accepting a $1 Million Loss

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Written by Timothy Sykes
Updated 10/22/2022 5 min read

Losing sucks.

Losing $1 Million is torture.

David Hanlin stared down this nightmare.

Not only did he survive, but he shared his experience at our Trading Seminar in Miami and in this full-length YouTube video below.

We are biologically programmed to avoid danger and things that feel bad.

That’s why it’s the BIGGEST HURDLE every trader faces.

I’m going to say something now that everyone needs to hear, and it’s not popular…

YOU NEED TO LEARN TO LOSE

No one can become a successful trader if they deny their losses.

It’s like ignoring your tax bill. Eventually, it catches up with you and is even worse.

If you’ve found yourself in a similar situation in the past, or even right now, know that you’re not alone.

Many, many traders have been there, including me.

Back at the start of my career, I lost a huge chunk of money trying to invest outside my comfort zone.

Know this…

YOU CAN RECOVER

Never doubt this for a second.

It all starts with small steps like the ones I’m about to reveal.

This is how you come back stronger and avoid similar situations in the future.

Don’t Get Too Comfortable

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Markets love to lull us into a false sense of comfort…right before they pull the rug out from underneath us.

After a string of winners, it’s natural to want to size up.

But remember, strings of winners are outlier events, just like strings of losers.

Don’t expect them to continue.

In fact, trade scared and prepare for the worst.

That way, when the rug is pulled, you are ready.

On the flip side, and as David highlighted in his video, you can get FOMO as well.

In his case, he felt like he was leaving too much on the table.

So, he sized up and started making more and more money.

Then he ran into Intelligent Living Application Group Inc. (NASDAQ: ILAG).

And as he pointed out in his video, he was willing to risk $200,000.

That’s a big sum, even for the size account he was working with.

He started the day with a nice little win from the short side. But as the stock kept falling, FOMO kicked in, and he wondered if he sold his shares too early.

As emotions took over, he continued to add to his position. Ultimately, even though he knew where his risk and stop were, he found himself with far too many shares sold short than he intended.

In a sense, he got too comfortable.

That’s why it’s important to build regular sanity checks into your trading, even if you are in and out in seconds.

Use calculators, excel spreadsheets, or even take a moment to step back, just to make sure you are where you want to be and not overleveraged.

David told attendees he planned to use a broker-level max loss going forward.

That would mean his broker would exit his trades at the market should his losses exceed a certain point.

Most of us can mentally or programmatically have these for each trading day or week. Doing this limits the potential damage any one trade can inflict.

Trust me, it feels awful to stop yourself from trading because you hit your max loss threshold. But in the long run, it will keep more money in your account.

Learn to Move on

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At some point, the trade is over, and you’re left with the aftermath.

You aren’t a failure.

Traders make mistakes, many of them far worse than you did.

What you need to do is understand where and how the mistake happened.

Then, determine whether it’s something you can control or not.

For example, none of us can control FOMO. It happens.

But, you can reduce its impact by limiting chat during certain times.

Or, you can choose to only trade during certain times of the day.

On the other hand, you can control the number of shares and risk you take.

Some platforms allow you to add prompts or restrict the number of shares or size.

As a protection mechanism, you can also drop in your stop loss orders immediately after your entry.

Ultimately, you have to decide what works best for your strategy and sanity.

But if there’s one phrase I want you to take with you, it’s this…

Keep your losses small and take them fast!

—Tim


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Author card Timothy Sykes picture

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”