timothy sykes logo

Trading Lessons

3 Ways Overconfidence Can Kill Your Trading

Timothy SykesAvatar
Written by Timothy Sykes
Updated 3/31/2023 7 min read

I’m not going to lie to you.

I was feeling myself after two back-to-back-to-back winning trades on Thursday.

I was sticking to my rules, staying patient, and waiting for the right setup.

And the results started to follow after a slow start to the month of March.

Source: Profit.ly

I just had three straight winning trades in the ticker symbol SIVBQ.

I own that stock…or so I thought.

Having one of my best trading days in weeks…I could easily have packed it up and shut down my platform.

But instead, I got cocky and decided to go to the well again.

The result?

An absolute disaster—giving up about ⅓ of my gains on a dumb trade.

And while it sucks it happened, it’s not uncommon for most traders.

In fact, overconfidence is one of the biggest mistakes traders can make, leading to irrational decision-making and increased risk-taking.

But before I tell you how you can avoid falling prey to the dangers of overconfidence…

I want to invite you to an all-day LIVE trading event I’m hosting TODAY

Ring in Q2 with me and watch how I analyze opportunities and trade in real-time. If you’ve wondered how a consistently profitable millionaire trader approaches the market, you’ll want to join this special live event. 

Now that we’ve cleared that…let’s talk about overconfidence and how it can destroy your trading account.

I’ll share with you some of my best practices you can use to stay grounded and focused on your trading goals.

Here are three ways overconfidence can kill your trading…

#1 It Can Lead To Overtrading

swing vs position trading
© Millionaire Media, LLC

When you think you’ve figured out the markets, guess what happens?

You believe you can trade any pattern at any time and succeed.

With that kind of belief, naturally, you want to be in on as many trades as possible, right?


If you are having success, it’s probably because you’re doing the right things.

For example, in my two earlier trades in SIVBQ, I exercised patience, waited for the right levels, and executed perfectly.

I waited for the panic to dip buy…

And I was being rewarded for making the right decisions.

That’s how it should be.

However, I got excited because I was on a hot streak after a slow start to the month. So instead of packing it in…I was looking for more opportunities.

And I stopped following my rules.

Just because the stock was making new lows…doesn’t mean it’s a dip buy opportunity…Moreover, I was not considering the time of day we were in. In the early afternoon, volumes decline…and pick up again right before the close.

My overconfidence led to overtrading.

How can you fix this?

Have a trading plan. A well-defined trading plan with clear entry and exit points can help you avoid impulsive trades based on overconfidence. Stick to your plan and avoid making trades outside it.

#2 Avoiding Risk Management

conclusion reversal cadlestick
© Millionaire Media, LLC

I tell my students to study, learn, and trade small until they build enough confidence to scale up. 

And for some traders, the trading small part is difficult. They invest hours studying but only trade a few shares and make or lose a few bucks. They want to scale up, and join the ranks of my other millionaire students. 

So naturally, when they start getting a few good trades under their belt, maybe a profitable week or month, they think it’s time to step it up and trade bigger.

Their overconfidence can lead them to take on more risk than they should, thinking they can handle it. But if the market moves against them, they may lose more than they can afford…wiping them out completely or robbing them of months worth of gains.

How do you avoid this?

I tell my students to approach the market as I do. Imagine you’re a retired trader who doesn’t need to trade anymore. You come out of retirement only if you find an opportunity so compelling that you would kick yourself for missing it.

This will help you develop the right mindset. But if you want to avoid taking an unnecessary risk, you should constantly review your trading.

I journal, write down my trades and make video recaps of my trading. I try to explain to my students the reasons behind my actions, the patterns I was playing, my thoughts on risk management, and my mistakes.

This keeps me honest. And helps me stay grounded and learn from my experiences.

#3: Refusing To Admit Mistakes

© Millionaire Media, LLC

Cocky traders find it difficult to admit when they’ve made a mistake.

This is extremely dangerous for newbie traders.


Because this can lead them to hold onto losing positions too long…instead of admitting they were wrong and taking a small loss…they refuse to cut losses…turning a small loser into a terrible loss.

But it gets worse…

Some newbie traders will double down on their positions because they refuse to believe they’re wrong, which can only lead to bigger losses.

My number one rule is to cut losses quickly, something I tell my students daily.

I rarely take big hits these days…

But if I do…I’ve found practicing humility helps.

Usually, when I make a boneheaded mistake, I will shoot a video and share it with my students. It’s a confessional that helps both of us. They learn from my mistake, and I’m reminded to stay grounded.

Even with +20 years under my belt, I don’t claim to know everything. But that’s okay because that keeps me open-minded to new information, trends, and strategies.

I started out as mainly a short-seller. If I had been stubborn and stuck with that route, I’d unlikely still be here. But I adapted, and that’s why I’ve been able to stay consistently profitable.

If you’re reading this early on Monday morning, you may still have a chance to catch my all-day live trading event today. Click here to join the event. 

If you’re reading this later in the day, and would like to learn more about my coaching program, click this link to learn more. 

How much has this post helped you?

Leave a reply

Author card Timothy Sykes picture

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

Post image

Get my weekly watchlist, free

Sign up to jump start your trading education!

* 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”