timothy sykes logo

Trading Tips-Tim Sykes Penny Stock

The #1 Reason You Lose Money

Timothy SykesAvatar
Written by Timothy Sykes
Updated 10/25/2022 4 min read

Tell me if this sounds familiar…

You’re finally finding your trading groove.

And hitting a handful of winners in a row.

Naturally, you think it’s time to get BIGGER.

So you do…

But you fall instantly out of your comfort zone…

Instead of focusing on the trade…

Your eyes are glued to your PnL…

And instead of reacting as you should…you FREEZE.

Then the losses start piling up fast…and before you know it…all your hard work has gone to waste.

Oversizing on the wrong trades can wipe out days, weeks, months, and in the worst scenarios—years of gains.

It happens to the best traders, and if you’re not focused, it can happen to you.

I’ve helped students for years overcome this problem.

Over 20 students who took my Millionaire Challenge hit that 7-figure milestone.

I hope to double that number in the coming years.

And I want YOU to be one of them.

Most traders never make it to the million-dollar mark, let alone consistently turn a profit.

Across thousands of students, I see one issue time, and again that holds traders back – position sizing.

The good news is that I can help you crush this obstacle and put you on a path to potential profitability with these simple solutions…

Better Than the 5% Rule

top penny stocks list September 07, 2021 Tim Sykes Trading Mentor Q&A
© Millionaire Media, LLC

A lot of traders live and die by the 5% rule.

They believe you shouldn’t risk more than 5% of your account on any trade.

Some take it to mean you shouldn’t risk losing more than 5% of your account on any trade.

If this or any other percentage works for you, then use it.

For me, I look at each trade as an interview.

Once I’m in, I want the stock to prove that it will make me money. And it’s got to do it quickly.

Otherwise, I cut the trade and move on.

That’s why I tell my students to “cut losses quickly.”

Now, that’s easy enough to apply when you’re day-trading minutes at a time.

But even swing traders need to apply this as well.

Any position you hold overnight can move against you hard by the market open.

It may not happen often. But all it takes is one to wreck an account.

In my head, I plan out the most likely worst-case scenario for the stock and size my trade accordingly.

For example, Cann American Corp. (OTC: CANN) set up for a nice run into the weekend.

On Friday, I bought 495K shares at $0.0058 just before 3:00 p.m. EST.

Just before the close, I sold 295K shares at $0.0083.

Check out the trade here on Profitly

The reality is that stock could have dropped back to around $0.0030-$0.0035.

It wasn’t likely. But it was possible.

If I kept those 495K shares and that happened, my total loss would have been around $1,139-$1,386.

Sure, it’s possible the stock would go to zero. And I would have accepted that.

However, I sized my position to be comfortable with the worst-case potential losses.

Additionally, I reduced my maximum potential loss by selling 295K shares on Friday for a profit of $737.50.

Penny stocks are my favorite because I don’t need to worry as much about outlier risk, the chance of something catastrophic.

I’m already dealing with extreme movements. So, there isn’t much that can happen that I wouldn’t expect.

The same doesn’t apply to large-cap stocks.

There were a lot of bag holders in Netflix (NASDAQ: NFLX) when it cratered months ago off horrible earnings.

The stock fell so much that it was more than 3x the expected move priced in by the options market.

That’s why it’s important to size your position accordingly, lock in profits, and not be afraid to cut losses quickly.

Trade scared.

At the end of the day, you can’t make money if you can’t stay away from big losses.

–Tim


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 (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”