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Why Fewer Trades ARE Better

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Written by Timothy Sykes
Updated 11/6/2022 5 min read

When people hear the words “day trader,” they conjure up images of someone in a dark room, squinting at a dozen screens.

Problem is that’s not what it’s like at all.

This is what my trading world looks like…

Yes, I’ve traded from Dubai, in a pool, with a laptop.

Every student from my Millionaire Challenge that crossed the six-figure threshold didn’t do it through quantity.

They did it through quality.

Greed pushes people into bad setups instead of waiting for good ones.

Some feel they need to make up for years of missing out by hitting as many winners as possible.

Most of us struggled to accept that taking fewer trades of higher quality would get us to our goals the fastest.

So, I want to show you some simple math that PROVES why fewer traders are better.

Next time you feel like you’re about to overtrade, pull up this article and remind yourself that patience pays.

Three Numbers That Matter

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Everyone’s success can be analyzed with three numbers:

  1. Win rate
  2. Average win
  3. Average loss

There’s a concept in statistics known as Expected Value.

Simply put, the expected value is what you should make on a trade given the three inputs above on average if you repeated the trade over and over.

Here’s a simple example.

I flip a coin that pays $1 for every win and costs me $1 for every loss.

Sure, I can make or lose money from time to time. But on average, if I keep flipping the coin, I’ll break even.

The formula for expected value is as follows:

EV = (Win rate% x Avg. Win) – ( (1 – Win rate%) x Avg. Loss)

Let’s use some numbers from my performance in Profitly.

Based on thousands of trades, I come up with the following:

  1. Win rate = 76.95%
  2. Average win = $1,625.25
  3. Average loss = $1,123.14

Using these numbers, my expected value is:

EV = (76.95% x $1,625.25) – (23.05% x $1,123.14) = $1250.63 – $258.88 = $991.75

In percentage terms, my expected value is 1.37%.

Part of why I’m successful is I achieve three things at once:

  1. High win rate
  2. Large average win
  3. Low average loss

In trading, that’s having your cake and eating it too.

Now, this isn’t something I achieved overnight. I got here through years of study and practice.

But here’s how you can make life easier for yourself.

Quality Over Quantity

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Let’s start with Trader Joe barely turns a profit.

Joe wins 50% of his trades on average. He makes $101 on wins and gives back $100 on losses.

So, Joe’s expected value:

EV = (50% x $101) – (50% x $100) = $50.5 – $50 = $0.50

Joe trades every day to achieve those stats.

Looking at his trading log, Joe discovers that he does better on Fridays.

In fact, if Joe only traded on Fridays, he would achieve a 60% win rate and make $110, with losses still costing him $100.

All of a sudden, his expected value jumps to:

EV = (60% x $110) – (40% x $100) = $66 – $40 = $26

Joe’s trades Monday through Thursday may be profitable. But they don’t achieve the same success as only trading on Friday.

This same concept can be applied to waiting for better entries.

Joe might find that he still wins 50% of the time by waiting for a better entry. But all of a sudden, his potential profits jump to $110 while his potential losses drop to $90.

Getting to Your Goals Faster

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Here’s the big reason why you have fewer trades of higher quality: drawdown.

Everyone takes a hit. That’s part of the game.

But if you wait for better entries or until you have a higher chance of winning, you statistically reduce the odds and size of your drawdown.

That’s huge for a trader trying to build an account.

Imagine an account that loses 5% vs. 25%. One is much easier to recover from than the other.

This is precisely why I tell my students to cut losses quickly.

I want them to keep their drawdowns as small as possible.

Because ultimately, if you can manage your losses and start to win fairly consistently, you’ll find your account will grow over time.


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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 (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”