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Could This Mistake Be Wiping Out Your Gains?

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Written by Timothy Sykes
Updated 2/23/2023 7 min read

Confidence in trading is developed when you learn more and lose less.

However, the next stage in the journey is potentially the most dangerous.

You see, many newbie traders will start believing they’ve got things figured out after stringing together a few good days or weeks.

They feel they’ve gotten over the hardest part of trading, and now it’s time to ramp things up.

But with new levels comes new devils.

In fact, scaling up too soon when you’re not ready can wipe out weeks or even months of gains significantly faster than it took you to get them.

Not only will your gains disappear. But your confidence will shatter, putting you in an even worst spot than before.

That’s why I want to talk to you about correctly sizing up.

Getting this right can propel your trading to the next level…

But if you mess it up and you’ll be finished.

Here are five ways you know when it’s time to scale up and start trading bigger.

#1 Build Consistency First

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By the time I was a senior in college, I was a self-made millionaire trader. While I don’t think I’m exceptionally smart or have special skills, I know my results are unusual.

However, I do believe if you commit yourself to learn the principles I teach, your chances of success are far greater than the 90% of traders who fail.

I’ve proven that time and time again, mentoring 32 of my students into millionaires.

But that’s a gift and a curse. Of course, it validates me. On the other hand, it makes newbie traders think that the road to success is easy. I’ll tell you right now, my most successful students studied their butts off. Despite having me as their mentor, nothing was guaranteed.

One thing you’ve got to understand is growth in trading isn’t gradual. In the beginning, you will likely suck…then suck a little less… and reach a point where you’re not losing or making silly mistakes…

But it’s not until you become consistently profitable should you consider sizing up your trades.

Now, that doesn’t mean a few good days, weeks, or months.

Trading bigger requires having confidence in your trading plan, setups, patterns, and strategy.

Confidence is built over time through practice and repetition.

If you don’t have that and start trading bigger too soon, then you’ll get obsessed by watching your PnL swing back and forth.

Once you’re focused on the PnL, your emotions will get the best of you. My millionaire students focus on the plays.

The PnL is just a byproduct of their execution.

Find out what works for you and build on that.

Once you’re consistently trading one strategy well, gradually start to size up.

Your gut should guide you on whether or not you should be sizing up more. You should be saying stuff like That is a perfect setup for me and the type of trades I should be willing to risk more in. 

#2 Build Your Risk Tolerance Up

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If you’re used to risking $100 on a trade, jumping to $500 is too big of a leap. You want to build your risk tolerance over time.

As your account grows, try to up the ante.

But you can’t skip levels.

If you’re finding success trading a specific setup and you’re typically risking $100 on the trade, try $120 or $130 the next time you play it. Now, that might not seem like a lot, but it’s a 20%-30% increase.

And if you’ve built up your account, you have some profits, giving you some extra room.

You want to avoid scaling up if you’re in a deficit. Experienced traders can sometimes get away with breaking the rules, but early on, you want to advance from a position of strength.

#3 Market Conditions Matter

In 2019 I made $125,000 in trading profits. However, in 2020 I made $1.19 million in trading profits.

Did I become a significantly better trader from 2019 to 2020?

While I do like to think I’m improving, the reality is the market was a lot better in 2020.

I capitalized in 2021, making $1.076 million. When trading got a lot harder in 2022, my profits were $130,000.

And right now, the markets are choppy. I am more selective, cutting losses quickly and taking profits faster.

Being aware of the market we’re in can help guide you on whether or not to be sizing up.

#4 What’s Your Risk of Ruin?

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The risk of ruin is a formula some traders use to determine the likelihood of a trader losing all their trading capital. The formula is typically used in risk management to determine how much of their account they should risk on each trade.

The formula considers a trader’s winning percentage, the ratio of the average profit to the average loss, and the total number of trades.

It calculates the probability of a trader losing all their capital before making a profit based on their trading history and the number of trades taken. Traders can use the formula to determine their risk tolerance and adjust their position sizing and risk management accordingly to minimize the risk of ruin.

# 5 Trading Strategy Matters

Traders should consider their trading strategy before deciding when to scale up. For example, short-selling is a very risky strategy for traders who are inexperienced and have small accounts.

Another risky strategy is options trading. Options can be volatile, with wild price swings, making it hard to manage risk.

One of my favorite strategies is panic dip buying. But other traders may see that as trying to catch a falling knife.

The bottom line, you’ve got to analyze your strategy and see if it’s conducive to scaling up. But more importantly, if you can manage the risk.

Final Thought

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Most people who hear about my success as a trader and my results as a mentor naturally get excited. And there’s nothing wrong with wanting to become a successful trader and being financially independent.

However, there’s a learning curve you have to be willing to go through. One of the greatest challenges is sizing up. Hopefully, I’ve given you greater clarity on  the process.

If you’re still trying to develop a strategy with the goal of one day scaling up one, check this out. It’s one of my favorite plays in the market. And has brought me a ton of success over the years. 

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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”