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Master This Essential Skill Or Risk Your Trading Account?

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Written by Timothy Sykes
Updated 3/17/2023 6 min read

As someone who has defied the odds in trading, making over $7.4M in trading profits and mentoring over 30 students who have gone on to become millionaire traders.

Let me tell you something…

Without mastering this crucial skill, you’re as good as toast in this game.

Unfortunately, most people dive headfirst into trading without realizing this skill’s gravity until it’s too late.

And when they finally wake up, their trading account is almost wiped out, and they’re in a pit of despair.

So if you’re sitting there studying patterns, learning about catalysts, and searching for the perfect risk vs. reward strategies…STOP right now.

Because let me tell you, none of that matters if you don’t have this skill down pat.

This is the holy grail, the game-changer, the one thing you MUST master first if you want any hope of succeeding in trading.

 

How I’ve Achieved +20 Years of Trading Excellence

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My success as a trader has nothing to do with my IQ or innate abilities.

I’m no math prodigy and wasn’t born with a crystal ball.

You don’t need to be a genius to succeed in trading.

What sets me apart from the pack and why I’ve been able to mentor so many students into millionaires is because of the principles I live and breathe.

My number one rule, the golden ticket to success in trading, is to CUT LOSSES QUICKLY. It may sound like a no-brainer, but its the most important rule you’ll ever learn.

Too many traders jump into the game with stars in their eyes, dazzled by the potential profits. They start learning all the fancy strategies and tactics before even considering protecting their capital.

But let me tell you, in your first year as a trader, protecting your capital is EVERYTHING.

It takes time to figure out what works and what doesn’t. And the best way to do that is by learning as cheaply as possible…by cutting your losses quickly.

If you take anything away from this blog post today, it’s this:

Focus on protecting your capital and cutting those losses…and the rest will fall into place. 

My top students know this, and that’s how they’ve thrived in this volatile market. 

 

Staying True To The #1 Rule

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You can’t hit a target if you don’t know what it is.

Too many traders focus on how much they will make…they fail to think about what happens if they’re wrong.

Before I enter a trade, I have two targets.

  1. The price level I want to start taking profits
  2. The price level I want to get out if I think I’m wrong

Now, in terms of risk management, I think I’m conservative. I will often get out of a trade very quickly if it’s not doing what I want it to do immediately.

But I’m okay with that because I’m protecting my capital.

I have not traded well in the month of March. However, I am just one or two good trades away from being profitable on the month. And that’s because, despite my bad trading, I’ve followed my number one rule.

Yes…losing sucks.

But a small loss is much better than climbing out of a massive hole.

What else?

Focus on trading GREAT setups.

If you’re a relatively new trader, then you probably don’t know what those look like, which is more reason for you to cut losses quickly.

But if you’ve been trading for a few months, you should know your best setups and trades.

Focus on those.

You’re more likely to get emotional when you enter trades that don’t fit your criteria.

For example, I can’t tell you how many traders are style-drifting and trying to buy dips in regional banks.

“It’s down too much” isn’t a reason to buy.

Just look what happened to SVB Financial Group (SIVB)…it went from $270 all the way down to the $30s before halting in just three days…

Emotions will surely interfere with your decision-making when you’re not trading your best setups.

Bottom Line

© Millionaire Media, LLC

The name of the game for newbie traders is survival.

You want to develop your skills while studying and learning.

Keep your losses small and cut your losers quickly.

Some of the strategies I trade can bring 10% to 30% returns in a few hours.

Of course, they don’t all work out like that…But if I stick to those A+ setups…and take small losses…then I will likely make money over time.

It’s how I made over $130K last year in one of the worst markets we’ve seen in decades.

And it’s the main reason why so many of my students have gone on to make millions. 


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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”