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Millionaire Mentor Update: Day Trading Risks in a HOT Market

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Written by Timothy Sykes
Updated 9/8/2021 13 min read

Questions about day trading risks come up often. There’s always risk involved with day trading. That’s why I trade so conservatively. But in a hot market, it’s easy to get sloppy with your risk management strategy.

So in this edition of the update, I’ll answer a few questions related to day trading risks. Then I’ll share five day trading risks to avoid in a hot market.

But first…

My Memorial Day Message to You

Tim Sykes & students chill in Michigan discussing day trading risks
© Millionaire Media, LLC

The stock market is closed today for Memorial Day. YES! I love stock market holidays, but especially in a hot market.

If you’ve seen my recent tweets, watchlists, and trades, you know it’s been an insane market. Last week I had between 14 and 20 stocks on my watchlist every day. (Sign up for my no-cost watchlist here.) And I averaged six trades per day, which is a lot for me.

So my Memorial Day message is … give thanks for our fallen soldiers and respect their memories, enjoy the day off, spend time with family, and get some rest.

Also, be better prepared for when the market is open. There are SO many plays right now it’s insane. Picture holiday trading — like Christmas or Thanksgiving. People stay home and trade and it creates more volatility.

Get access to my FREE “Volatility Survival Guide” here.

With the lockdown and people losing their jobs, every day is holiday trading.

If you’re new to penny stocks and wondering where to start…

After you watch the “Volatility Survival Guide” get “The Complete Penny Stock Course.” (Yes, it is available for Kindle. You could be reading it five minutes after you finish reading this post.)

Let’s jump right in…

Trading Questions From Students

Each week I answer one or two questions from Trading Challenge students here. If you want me to answer your questions, the best thing you can do is apply for the Trading Challenge. During my weekly Challenge webinar, I answer student questions in real time.

This week’s trading questions focus on day trading risk.

Let’s do this…

“Tim, it seems so easy right now. Is there a risk of developing bad habits in this hot market?”

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Yes, of course. It’s called degenerate gambling.

I’ve had my moments in the past few weeks. It’s very easy to start taking trades you wouldn’t normally take. You gotta watch out for the greedy monster.

Let’s put it in perspective…

I’m making $5K to $10K per day lately. For example, on May 18 I made $9,163 in profits. On May 19 it was $6,747. For the week I averaged $6,039 per day.** That’s WAY above average.

(**My results are not typical. I have exceptional knowledge and skills developed over time. Most traders lose money and trading is risky. Do your due diligence and never risk more than you can afford.)

But I’m overtrading a little bit. The key is to understand…

Why Cutting Losses on Hot Penny Stocks Is SO Important

I traded Kronos Advanced Technologies Inc. (OTCPK: KNOS) again. I also traded SPO Global (OTCPK: SPOM). Both trades were late-day chases just because … I wanted more.

So you gotta watch out for the greedy monster. You have to try to take meticulous trades. You can still be speculative, but try not to chase. Especially late in the day. That’s when most of the plays have made their biggest percent gains recently.

“The new Breaking News feature on STT is awesome. Is there a risk of becoming too reliant on tools?”

There’s always day trading risk. The tools can just help you spot plays faster. In the video above, I mention the Microvision, Inc (NASDAQ: MVIS) trade. I literally made $2K** because of the Breaking News chat feature on StocksToTrade.

(**Again, my results are not typical. I have exceptional knowledge and skills developed over time. Most traders lose money and trading is risky.)

I wouldn’t have taken that trade without the tool. Why? Because I would’ve gotten the news at the same time as everyone else. I wouldn’t have had the same opportunity.

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Keep in mind, even though I made $2K … I sold too soon. There was actually the potential to make $4K given my position size. But at the same time, it was a speculative news play using the new tool. So I don’t mind taking half of the potential profits.

Using the Breaking News feature gave me the edge of being early. There’s so much opportunity — and the right tools can help you find it.

The Best New Tool in Years: StocksToTrade Breaking News

I’ve had a lot of questions about this new feature. StocksToTrade already has a regular news feed like every other stock screener. The benefit of the Breaking News chat is that it’s run by two highly skilled stock market pros.

If you’re already a StocksToTrade user, add Breaking News to your subscription here.

Before I get to the five day trading risks to avoid in this hot market, let’s look at the…

Trade of the Week

Too many people, especially newbies, judge their good trades on how much they make. For me, I ask myself whether I stayed disciplined and stuck to my trade plan.

Let’s look at a trade I mention in the video above as an example.

Hoth Therapeutics, Inc. (NASDAQ: HOTH)

HOTH is yet another recent coronavirus play. On May 18, the company announced a licensing deal for a dermatitis treatment. The press release wasn’t specifically about coronavirus. But it mentioned a previously released joint development agreement for a COVID-19 vaccine.

A few things to keep in mind…

First, you should keep track of former runners. Anything that spiked recently can spike again with a news catalyst. Second, watch for press releases that mention ‘coronavirus’ or ‘COVID-19.’

Any positive news using those words can spike a stock.

Check out the HOTH six-month chart:

HOTH 6-month chart helps explain day trading risks
HOTH chart: 6-month, daily candle, coronavirus spiker — courtesy of StocksToTrade.com

As you can see from the chart, HOTH has spiked to over $7 three times in the past six months. Also, notice the failed one-day spikes. All the more reason to never hold and hope.

Now take a look at the HOTH intraday chart from May 19:

HOTH intraday chart May 19, 2020 failed breakout. One way to mitigate day trading risks is to cut losses quickly.
HOTH chart: May 19 intraday, 1-minute candle, failed breakout — courtesy of StocksToTrade.com

I bought when HOTH was breaking to new day highs. Based on recent spikes, I thought it could get into the $5s. That was my goal. As it turned out, there wasn’t much spike so I followed rule #1: cut losses quickly.

Even though the trade was a loss, it was a good trade. I was just totally wrong. So taking a small loss was the best-case scenario.

With that in mind, let’s wrap this edition of the update with…

5 Day Trading Risks to Avoid in This HOT Market

Day Trading Risk #1: Overtrading

Otherwise known as the greedy monster, overtrading is a HUGE day trading risk. Especially when there are so many plays.

Instead of taking lots of trades … be meticulous. Take trades that fit your strategy. May is already my best month in years. But I’m not trading new patterns. They’re the same patterns I’ve traded for 20+ years.

So be careful of taking trades just to get more. Read this important post on how to avoid overtrading.

Day Trading Risk #2: Chasing Big Percent Gainers

With so many stocks making their biggest moves late in the day it’s easy to chase. But if a stock is already up 100%, 200% — or even 500% like we’ve seen lately — you have to be careful.

That’s not to say you can’t be a little speculative. But you have to be careful. Modulate your position size to fit the risk. Remember, sometimes the best trade is no trade.

Day Trading Risk #3: Going for Home Runs

Hitting lots of singles adds up over time. I say this over and over again. In this hot market, going for home runs can be even more tempting. Even if a stock does go up 200% in a day, focus on taking 10% or 20%. If you get a little more (or a little less), that’s OK. Learn to play it safe…

… especially if you’re trading with a small account and/or new to trading.

Day Trading Risk #4: Judging Trades On Profit vs Loss

Again, it’s easy to slip into the caveman mentality of “win equals good trade, loss equals bad trade.”

Stop. Don’t judge trades on profit vs. loss. My top students and I take losses. Which is why in a hot market it’s still important to analyze your trades. Here are four questions to ask when you review your trades:

  • Did you stay disciplined?
  • Did you stick to your trading plan?
  • What was the best-case scenario?
  • How could you have done better?

Keep your answers in your trading journal. Profit.ly is a great place to keep this information, so if you’re not already a member, choose your plan here.

Day Trading Risk #5: NOT Using the Best Tools

This one is counter-intuitive. Many people avoid investing in the best tools because they want to save money. Or think they can do it all themselves.

That’s a false economy. It’s a domino effect that keeps you playing catch up. Especially when it comes to tools for traders. If you knew one good trade would pay for your subscription, would you invest in a tool? Too many people make this harder than necessary.

Take StocksToTrade for example. (Full disclosure: I helped develop StocksToTrade and I’m a major investor.) The built-in scans are all my favorites. The entire platform is designed to find the best penny stocks to trade.

So when I say “use StocksToTrade,” it’s because it’s designed for my strategies. And it works. Now with the Breaking News chat add-on, it’s even better.

Another example is choosing a broker. So many newbies want to trade using Robinhood because “it’s free…”

Sorry, I think Robinhood sucks. To me, the only good thing about Robinhood is all the morons using it. They make it easier for me and my students to profit. I trade using these brokers.

Bottom line: use the best tools. Even if you have to pay for them.

BIG day trading risk is not using the right tools. Tim Sykes at Nasdaq closing bell StocksToTrade
© Millionaire Media, LLC

Millionaire Mentor Market Wrap

That’s another one in the books.

Enjoy the rest of your Memorial Day holiday. Get some rest and then spend an hour or so this evening to prepare for the coming week.

Remember, in this hot market it’s easy to overlook day trading risks. So be careful, stay safe, and trade like a sniper.

What do you think about day trading risks in this hot market? What are you doing to prepare? Even if you’re new to trading, comment below, I love to hear from all my readers!

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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

* 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”