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AMA: How Do I Manage A Huge Losing Trade?

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

Hey Trader. Tim Here.

We all take massive losses from time to time, myself included.

With practice and preparation, it becomes easier to avoid them.

It’s a big reason I lay out my trades for my students so they understand my thought process.

I spend countless hours in webinars and trainings helping traders hone their risk-management skills

But the journey there can be painful.

However, I can help you speed up the process and make things easier.

Because I’ve whittled everything down to three key points:

  1. Recognize the problem
  2. Learn to take a loss
  3. Prepare to avoid heavy losses

Once you integrate these into your trading, the emotional roller coaster smooths out.

The tough part is we can have this in the bag for weeks, months, and sometimes even years.

Suddenly, emotional paralysis pops out of nowhere.

You can fight back.

Here’s how.

When you’re in the trade

tim sykes and kyle williams on laptops
© Millionaire Media, LLC0730

Our emotions make us do crazy things.

If you ever find yourself in a losing position that grew worse than you expected, you may have found yourself doing one of the following:

  • Rationalize a lower stop based on “what you see in the charts” at that moment
  • Increased your position size to “lower your average entry price”
  • Frozen and done absolutely nothing.

Your best choice is none of the above.

When I find myself with a greater loss than expected and outside my trade parameters, I exit the trade right then and there.

Without the constraints of my trade setup, all I have is hope, which isn’t a winning strategy.

This can be extremely difficult for traders, especially when you don’t consistently turn a profit.

The reason is simple. You fear the next trade.

That’s why I advocate for small position sizes as you learn. You can always increase them later on.

Recognize the problem

This part is easier said than you might think.

Most of us know when we screw up. We just don’t act on it.

That’s fine, but let’s deal with the first step.

We know we messed up if:

  • We’re uncomfortable with the total losses
  • We (re)move our stops
  • Are outside the trade parameters we set before starting

I want you to practice looking for these signs in every trade you take for the next dozen trades.

It doesn’t matter if they’re easy or if you don’t find a problem.

You need to get used to pausing for a moment and taking inventory.

Learn to take a loss

© Millionaire Media, LLC

As I mentioned earlier, it’s tough to accept losses when you don’t consistently turn a profit.

That’s why telling yourself ‘there’s another trade around the corner’ doesn’t necessarily inspire hope.

You can get used to taking a loss with practice.

I know that sounds counterintuitive, so let me explain.

Like any athlete or musician, we want to ingrain the correct behaviors into our minds so that when the pressure’s on and emotions run hot, our body acts on autopilot.

When you practice taking a loss, you learn to break through the emotional barrier and do what you need to.

Now, I’m not saying that you blow up an account.

Rather, take very small positions in setups, they don’t have to be great ones, and get used to stopping out.

Heck, you can practice with one share.

The point is that you get used to losing when you need to.

And it’s fundamental to my philosophy of ‘lose small and fast.’

Prepare to avoid heavy losses

Nothing will help you avoid mistakes more than preparation.

That means doing your homework and creating a trading plan.

This can be difficult for new traders so here are a few tips:

  1. Focus on one setup or pattern at a time. This is one of my absolute favorites.
  2. Map out different scenarios with what actions you want to take for each outcome.
  3. Decide ahead of time how much you are willing to lose on any given trade, day, and week.

Again, we want to make everything as mechanical as possible.

Narrow your focus and get good at just one setup.

Once you get that down, expand from there.

If you aren’t comfortable with your performance right now, feel free to start over.

Pick a setup pattern you like and work it hard, learning how to manage risk. Use simulated trades to get a feel.

When you’re ready to start, keep your position size small.

Every day is a chance to turn things around.

You don’t have to let the market beat you.

I’ve trained students for years and watched some go from complete novices to achieve incredible heights.

I want the same for you.

If you want somewhere to start, try my Supernova Pattern.

It’s easy to understand and a great way to get started.

—Tim


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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”