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Penny Stock Basics

How To Protect Against Big Stock Market Losses

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Written by Timothy Sykes
Updated 1/10/2023 19 min read

Stock Market Losses

I want more Millionaire Trading Challenge students to avoid stock market losses and to accomplish this I NEED to get you thinking and trading the way millionaire traders do…and remember, I do have some knowledge in this field since I started with a few thousand dollars and turned it into 7-figures, years before I’ve now mentored SEVERAL of my Millionaire Trading Challenge students to do the same (be careful learning from any non-millionaire trader who doesn’t show EVERY trade publicly, they’re usually full of crap, or worse, don’t teach good trading rules and you only realize it after you lose big aka when it’s too late)**

So instead of just focusing solely on profitable trades, learn to analyze the market as a whole…not necessarily the entire stock market — this isn’t right-35%-of-the-time-CNBC — but analyzing sectors that are in play as a whole…like the weed stock sector…and protect yourself when sector momentum turns against you.

If you ever fall in love with this sector, or any sector, please remember to read this article, and when the momentum shifts, learn to protect yourself and cut losses fast just like I outline in this must watch video lesson (which we have also transcribed below for my valued deaf Trading Challenge students!):

All right, Tim Sykes here. What a difference a day makes. I don’t even know where to begin.

I guess I’ll start with this news, that the U.S. is ending the policy that let legal pot flourish. This came out right before the market opened. Pot stocks have been so hot lately and I was actually long on one over night. I don’t like chasing, so I actually took one of the least over-extended plays, but it doesn’t matter. You know, when there is news like this, I think this came out, like, what, 10, 15, 20 minutes before the market opened, this crushes all the pot stocks equally.

And the best you can do is to try to minimize losses, and I did a really, really good job. I actually finished up a few hundred dollars with the morning trades. I am out of day trades, so I’m gonna have to do overnight trades for the rest of the week because I am trading with a small account this year. I’m just a little over $12,000. But now, already, in 2017…or 2018, I have grown it by roughly $1,000. Not perfect trading, you know, but pretty good loss containment on CBDS. Actually, really, this was the best…probably the best trade I’ve done this year, the best trade I’ve done in a while, even though I lost money. I lost roughly $8. Here is CBDS now, down 23%. This was the chart I was buying yesterday. It was a nice, very nice breakout.**

I gave a webinar to my Challenge students, talking about how I don’t really like buying…you know, this is kind of, like, day three, after it’s, you know, up from six all the way to the nine, so I don’t like buying that. But it also was a nice breakout above the previous high of the eights, and if you look at some of the other, you know, pot stocks, you know, this too had a big breakout. And, you know, ignore the fact that they’re all crashing today. This is just due to that news. But this was…CANN was more over-extended. CNBX, this was more over-extended. Now they’re just getting taken out and shot.

But, I chose CBDS, not because I love trading $9 stocks with a small account but because it was the least over-extended. And it was up to the 970s after hours in pre-market today, coulda shoulda woulda probably gotten out. It’s tough to get executions on OTC stocks, pre-market and after hours. Technically they’re not supposed to trade, but trades do sneak through.

And I just couldn’t get out, so the first thing I did today was, you know, sell. When you have negative news like that, it’s not like, oh, maybe the news will affect the stock, maybe it won’t. It’s like, hide your wives, hide your kids, like, protect your ass. It doesn’t matter how good the chart is. When, you know, you have legalized pot, right, which is already questionable, and then you have this news break and the headline is gonna “end policy that let legal pot flourish”, I mean, it’s…Also, if you read the article, I mean, it’s not even official yet, it’s just according to two sources which is the minimum required for an article. The journalist needs two sources. So, it’s very, very speculative news, but this is a very, very speculative sector, so of course the news is gonna be speculative. Anyways, the news crushed the stock. I cut my losses quickly. That’s the main lesson there.

CANN just keeps dropping, down 28% now. CNBX, which I actually dip bought…You know, I do like dip buying these morning panics, but it’s tough with this news. So, a lot of you guys want, like, these rules that just work all the time. Like, okay, if it’s this pattern, then you buy. If it’s this pattern, you don’t buy. It’s all trying to judge the situation. The pattern here is perfect, but the news is really, really bad for this sector. You know, it’s a sector-wide kind of news, and that’s why they’re all down 20-30%.

So, I got a little bounce on CNBX, you know, one of these bounces. I don’t even know which one. I think it might have been…was it the first one? Yeah, I think it was the first one that I got the bounce on. Or, actually, I didn’t even sell in the first bounce. I saw the first bounce, then it came down, and then I kind of double bought it and I got out on the second bounce. Long story short, these stocks aren’t bouncing very much. They’re also up a ton, so maybe tomorrow, maybe later today, maybe somebody will come out and say, “This news is false,” or, you know…I don’t know what can happen. They are potential dip buys but, right now, you just have very over-extended pot stocks that are getting crushed.

Look at NUGS. NUGS, N-U-G-S. Okay, this one actually is bouncing nicely. The bounces aren’t perfect. This was just true panic, from 5.7 down to 2.7, and now you have a nice, little $0.70-a-share bounce. This is tough to play. You know, when you have lower lows, lower highs, you know, you think this bounce is gonna work, you think this bounce is gonna work, and neither of them do so you give up on the third bounce, and the third bounce is the one that works. So, it’s kind of tricky. All you can really do is, A, if you’re long, protect yourself. B, congratulations if you’re short.

I had a few people in my chat room who were short. Where was it? Too many people these days. Where was it? Oh, I congratulated michaelmason, “Covered half of CANN,” for $1,700 in profits.** Interactive Brokers had shares to short yesterday. I don’t know if they had shares to short today, but I’m guessing michaelmason took some of those shares to short on CANN. Good job.

Also, millaced, on CNET, in at 2.82, sold for $217 profit0.** CNET is up to the threes. Where was…There was one other trade. Oh, Lekha, in and out on NUGS for $644,** so good job, Lekha. This is my Challenge students, these are my most dedicated students. So, I’m proud of them studying and testing. There was one more person who had a really nice profit I want to congratulate. Don’t know…I don’t know. There’s a lot of plays, and the lesson here that you can learn…oh, lozanopool just made, you know, nearly $0.50 on FTFT, that’s in play again, too.**

The main lesson that you can learn from these plays is, A, if you’re long overnight and there’s negative news on a speculative sector, you just cut your losses. I lost a penny a share on CBDS. I actually got a really good execution on the exit, because these stocks are not always easiest to sell.

And some of you guys are asking me already, like, how did I sell so quickly, what limit price did I use. I use a limit price of nine, and I got out, you know…I was willing to lose. I was in that, like, 918…919, to be exact. So, I was willing to lose, like $0.20. The bid was not at nine, I just gave it extra leeway just to…you know, in case it was…started dropping quickly. In hindsight, I probably should have used, like, 880, and not tried to, like, you know, care about $0.10 or $0.20 a share. I only had 500 shares, so we’re talking about $100. You just want to protect against this.&&

If you have a small account, you know, and you have 500 shares, and you lose $1 a share or you lose $2 a share, about $500 or $1,000 loss really hurts. I lost $8, it does not hurt at all. And I made it back with my CNBX dip buy already, so I still made a few hundred dollars. When you have a small account, your whole goal is to try to make a few hundred dollars. You’re trying to get closer to the magical pattern day trader rule limit of $25,000, and then you can be free.

And some of you guys will say, “Well, Tim, why don’t you just do an offshore broker? Then you don’t have the pattern day trader rule.” I don’t trust offshore brokers, I don’t think anybody should. They’re just as speculative as these pot stocks, except you’re putting your money with them. And if something goes wrong, there’s no FDIC insurance, so I’m not using offshore brokers. I use E*TRADE and Interactive Brokers. I gotta write a whole blog post about what I’m trading with this year, in 2018. But, I just wanna play it nice and safe when I have a small account.

And the pattern day trader rule is actually good. It forces you to learn good habits and discipline and, you know, you can kind of use it as, like, training mode, you know, until you get to $25,000. All of this is training mode. Whether I make or lose a few hundred dollars, it doesn’t matter. It’s just practicing good habits and cutting losses quickly, and then that stuff really matters and really is amplified, you know, the consequences of whether you learn it or you don’t learn it is amplified once you get over $25,000, because then you’re dealing with big money. And, if you haven’t learned to cut losses quickly, then forget about losing…the difference between losing $8 or $1,000. You know, if you’re trading with bigger accounts, the difference between being able to cut losses quickly and being disciplined or not, you know, you might lose $1,000 or lose $20,000. So, it’s good to be in training mode. You know, once upon a time, I bought some jet skis and they had this training mode that was required, you know, for you to drive them at first in the training mode and get used to that. And I kind of compare that with trading under $25,000. I like being under the pattern day trader rule.

That said, it’s my goal to get out of it, but I have to prove to myself that I can get out of it. I would much rather you guys start with $1,000, $2,000, $3,000, $5,000, and learn how to make $10,000, $15,000, $20,000, learn how to grow your account exponentially, rather than, you know, starting with $20,000 and trying to make just a little bit of money and then, you know, getting out of the training zone.**FF The more training you have, the better. And it’s tough to train once you have big money, because you’re focused on, you know, making money. Like, that’s what this game is all about, right? But, because of my training, I really executed CBDS well. CNBX, I got a little bounce.

I mean, just look at this. Let me just show you the watch list right now. Yesterday, I mean, during the Challenge webinars, I was marveling the fact that there were two dozen weed stocks that were up 20%, 25%, 30%, 50%, 100%, 200% on the day. Now, it’s a total change where you have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13…13 stocks down more than 10%. Even as bad as this is, it’s not as bad, you know, compared to yesterday’s good stuff. It was actually pretty crazy how well these stocks are still holding up. You know, yesterday there were, I think, 18 or 20 stocks that are up 20-25% or more, and now, I mean, some of them are getting destroyed, like NUGS and POTN and CNBX and BUDZ. You know, all these weed stocks are getting destroyed. Wow, look at CBDS, it just keeps going.

I read in the chat room, one guy was like, “I didn’t sell so now I’m just gonna ride it.” Bad, bad choice. You know, there’s no riding this, okay? If you think of this stuff as, like, shit, which you should, you know, all of these companies are shit, I’ll make a crude analogy that all shit goes down the toilet eventually. And you’re gonna try to ride that wave? I really would not, you know, try to do that. I’ve learned one extraordinarily valuable lesson over the years, and that is cut losses quickly when you’re wrong.

And when you have news like this, this is a game changer, okay, for a speculative stock. This is not a game changer that…it’s not gonna break the legalized pot industry forever. This is a game changer for today. This is a game changer for this latest round of spiking, and you have to recognize that. And the sooner you recognize that, the better. Whether you lose a penny like I did, best case scenario, or you lose $0.20 or $0.50, just don’t lose $1 or $2 or $3 a share and go down with everything else.

You know, it pisses me off. I did an article…let me see this. What was it? Let’s see, buying high. They changed the ticker…or, they changed the web address…mjsykes, too. It was for Men’s Journal and they changed their whole website around, so I think I had to change my little Bitly link that I saved it. It was so nice and easy for me to save. Look how bad my wi-fi is, I can’t even do this. This is another thing. Like, I’m not on good wi-fi right now…here it is. So when you’re not on good wi-fi, you know, you have to be very careful. No, I don’t wanna watch your stupid ad.

This was a few years ago, “Buying High: How to Get Rich on Pot Stocks,” and it was me versus this guy who had fallen in love with pot stocks, saying, “This is the future. It’s always gonna do well,” and it just didn’t. And it flamed out and the reporter was there, this…you know, this reporter actually followed both of us around for several months. So, this was a fantastic story and I encourage you all to read it. I’ll link it underneath this video.

But, too many people get confused with, you know, a hot sector, and they think that that hot sector is the future, and that’s how they invest. You know, they ride the wave. And, you know, if you believed in Blockchain or Bitcoin, you believe in it and, you know, you’re rewarded not just with 100% or 200% wins, you’re up, like…you know, some people are up 50 times, 100 times, their money. If you believe in something, that is the secret. The problem is that, now, Blockchain, Bitcoin, and weed are all up a tremendous amount. So, if you believe in it this late in the game it’s very dangerous, and that’s why you see these stocks dropping 20%, 30%, 40%, 50%, in a day.

And you don’t need to hold through that. It blows my mind how many people hold through this stuff because they feel like they’re married to this stock, or they’re married to these sectors. And this happened, you know, this was in 2014, almost every single pot stock that was hot back then went bust. Okay? It doesn’t matter if legalized pot is a booming or fast-growing industry. These individual penny stocks, these individual little pieces of shits, are not gonna make it. There might be 1 out of, you know, 500-plus pot stocks that I’m watching that will make it, and the odds of you finding that one are literally 1 in 500, or probably even less, because it’s so random and you don’t know, you know, what it’s gonna take to actually make it. You know, you might have a company with a terrible CEO and terrible management but, for some reason, they get a patent or, for some reason, you know, their stupid product takes off.

You know, if you remember…what is it? True Religion Jeans, they used to be a stock, TRLJ. They got acquired. But, they started out as a Vancouver pump-and-dump, and the jeans actually took off, you know? They were pumping up these piece-of-crap jeans, and True Religion Jeans actually, you know, made it. There was no indication whatsoever that that company would make it. Out of all the pump-and-dumps that I’ve ever traded, you know, 99.9% of them have crashed. So, there’s no way that you could have guessed that True Religion would make it. It was just a fashion statement. And it was kind of funny, I don’t know if they still have it, but True Religion had a retail store right on Wall Street, for no reason. Literally, right on Wall Street, in New York City, True Religion Jeans, and I think it was just a statement, to be like, “Ha, we were, you know, a pump-and-dump and we made it, so we’re gonna put our office…,” not even an office, a retail store, “on Wall Street,” which is just ridiculous.

But, the reason why I bring this up is too many of you guys don’t cut losses. Too many of you guys go down with the ship. Too many of you feel like you have to hold. You don’t have to hold, and I wish I could come through this computer or smartphone, however you’re watching it, and tell you, “You can avoid this pain. You can avoid this stress.” I was totally 100% wrong to be long on weed stock overnight. You know, I got a little unlucky with the news, but that’s what happens, you know. When you hold overnight, there’s the risk of overnight news. So, in hindsight, I should not have chased, I should not have, you know, felt guilty missing out.

This is another thing, you feel guilty missing out on a hot sector. You have FOMO, fear of missing out. And so, I let my FOMO get to me, where I shouldn’t be buying a $9 stock, I shouldn’t be buying a stock like CBDS, you know, that’s up that much. Even if there was no news, like, I got a little too over-aggressive. So, this is a good wake-up call for me, too. But, despite the wake-up call, despite being wrong, I lost a penny a share, because I manage my losses and I had the right mentality going into this.

So many other people, CBDS, IMLFF, CANN, FFL, RMF, MSRT, POTN, CNBX, BUDS, BUDZ, NUGS, all of these pot stocks, I guarantee, have too many investors…investors, as if they’re serious people…who are, you know, trying to ride the waves and they think that this is what the stock market and penny stocks…you know, this is the price of doing business, you have to ride the 20%, 30%, 40%, 50% intra-day losses, and that’s bullshit. You just don’t. You’re making it more stressful, you’re making it harder than it has to be, and you’re making, you know, me and penny stocks look bad. It’s not…This is not penny stocking. You do not have to take a 30% or 50% loss. I can’t remember the last time I took a 30% or 50% loss.

You know, I’ve been very good at cutting losses. Let me actually see. Let’s see, the past year…So, I made roughly $250,000 in the past year.** My biggest percent gains, ITKG, WLKR, SRAX…FFRMF, this was a 30% winner the other day. PGSY, ENVV…Now let’s look at my biggest percent losses. You can click this and see the losses. So, this was my biggest loss, shorting, obviously, because I suck at shorting. I lost…lately, in this market. I lost 13%, that was my biggest loss, and that was roughly a year ago. Also, IHRT, I got a little stubborn on this. This was in my long-term newsletter, and I lost 13%, and I held this for, like, two weeks. So, 13% is pretty much my max. INOD, I got long, lost 11%. So, that’s my max, and even that…these are in my longer-term newsletter. You don’t have to risk losing 11%. If you have a small account, protect your account.

So, if you understand the lesson in this video, please do say that. Leave a comment underneath this video saying, “I will protect”, three words. And, if you keep that mentality in mind on all your trades, you will protect, and you don’t have to sit through a 50% loss on a junk play like NUGS. Thank you, I’ll see you in the chat room.

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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”