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Can Overconfidence Kill Profits?

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Written by Timothy Sykes
Updated 5/5/2023 5 min read
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Do you often find yourself on the edge of your seat after placing a risky trade?

I can’t tell you how many newbie traders are downplaying the potential risk…

And it’s costing them more than just money.

Their confidence gets shot and the level of frustration rises.

It’s a slippery slope that rarely ends well.

I’ve even seen some of my students lose high six-figures…even seven figures because they were overconfident on a play.

However, there is a way to avoid this trap. 

I am going to delve on how I avoid blowups, protect my capital, and position myself to stay consistently profitable.

 

Scared Money Makes Money

students kyle mari and jack
© Millionaire Media, LLC

If there is one thing you take from today’s post is that SCARED MONEY CAN MAKE MONEY IN THE STOCK MARKET.

In fact, I tell ALL my students to trade scared. 

Why?

Because you want to get in the habit of thinking about risk first.

Of course, the goal is to make money…but at what expense.

I’m not the world’s greatest trader, but I’d rather trade safe and smart than wild and reckless…

Trading scared has made almost $7.5 million in trading profits. 

Sure, I often miss some of the biggest movers due to my travel schedule. But I’m not thinking about catching big moves.

I’m thinking about how I can make money while taking the smallest amount of risk possible.

I trade conservatively, often taking profits quickly, which can be frustrating.

But on the bright side…I’m also cutting losses quickly…which allows me to constantly live to fight another day.

Now, that doesn’t mean I’m not trading crazy and volatile stocks…

I am.

I’m just being extremely strategic about my entries and exits…

How I Traded The Crazy Action In SVRE

© Millionaire Media, LLC

Last week SaveroOne 2014 Ltd (SVRE) went from $0.98 to $2.60.

And while a stock that volatile can be scary for most traders there are ways to trade safely in my opinion.

My first trade was in the pre-market…

A dip buy opportunity I saw after it traded above the 2s.

I got in at $1.89…and out at $1.97.

I didn’t like how it was spiking…dropping…spiking…and dropping.

Also, I have no problems jumping into a trade again if I feel I have better risk vs. reward.

On my second entry about 20 mins later it looked like the stock was going to break above $2…I got in at $1.96.

This was after it had a massive drop from a high of $2.50.

The stock did bounce above $2…but it was struggling to blast off…so I took profits at $2.09

A couple hours later I got a chance to “dip buy” this stock one more time…

I saw that it was holding the high $1.70s -$1.80 area…

I got long at $1.80 but once it struggled to break past $1.90 I was out at $1.89.

More Breaking News

At the end of the day, I traded the stock 3 times. And while it was super choppy, I reduced a lot of stress by only trading it at times I felt offered the best opportunity.

Bottom Line

© Millionaire Media, LLC

As traders we often think about the upside a lot more than the downside. 

But if you want to join the ranks of my other millionaire students…then you must put risk first.

If you’d like to learn more about my program, and how it’s helped dozens of traders on their journey towards millionaire trader status…click here for the details. 

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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”