The Math Behind Becoming A Millionaire Trader

Written by Timothy Sykes

Let’s face it, we’ve all dreamt of becoming ultra-successful.

The good news is that this dream isn’t as far-fetched as it may seem in the trading world.

In fact, the blueprint to amassing a small fortune in trading can be broken down into a simple equation.

Here it is:

1,000 trades with an average profit of \$1,000 each.

But how do we ensure a profit margin of \$1,000 per trade?

And what about the inevitable losses that come with the territory?

You’ve got questions…and I’ve got the answers…

So let’s dive in.

The Rule of Averages

First and foremost, it’s crucial to grasp this fundamental rule of profitable trading:

It’s an elementary concept, yet one of the most critical.

Throughout my trading career, I’ve maintained an average profit of around \$1,600 per trade while limiting my average loss to approximately \$400.

Source: Profit.ly

This substantial gap between potential gains and losses forms the bedrock of a thriving trading portfolio.

The Win Rate

Your trading strategy’s success also hinges on maintaining a high win rate. My win rate stands at around 76.6%.

Yes, losses do occur, but they’re not the enemy – the real adversary is uncontrolled losses.

For example, that boneheaded trade in EFTR will most likely take a few weeks or even longer to come back from.

As traders, our focus shouldn’t be on dodging losses but rather on managing them effectively.

And because of that, I will be focused on building up small wins.

Cutting Losses Quickly

How do we manage these losses?

The solution is simple – don’t let your losses surpass an average of \$100- \$200.

This is the foundation of the ‘Cutting Losses Quickly’ (CLQ) strategy.

This tactic involves establishing a pre-set price point at which you’re ready to ‘stop out’ or sell, effectively curbing any significant damage to your portfolio from a single trade.

I don’t use an actual stop loss because of the nature of the stocks I trade…they’re just super volatile.

And it’s easy to get wanked around and whipsawed. That’s why I prefer to use a mental stop instead.

Nonetheless, the CLQ strategy has been instrumental in creating over 30 millionaire students from my trading program.

And if it wasn’t for this rule/strategy…I wouldn’t be here after 20-plus years.

Embracing Outliers

You’re likely to experience trades that buck the trend. In fact, I had one last Friday that cost me well over \$27,000 in the ticker symbol EFTR.

Now, I’m starting the month of June in a hole…

And while it sucks…I always have the big picture in mind.

Remember, our goal of hitting the \$1 million mark isn’t about individual wins or losses but averages.

When repeated over time, these averages guide you to your million-dollar milestone.

Patience and Refinement

Becoming a millionaire trader doesn’t happen at the snap of a finger.

It’s a journey that requires patience and relentless work on refining and optimizing your trading process.

Even after 20 years, I’m testing new ideas and strategies.

As the market environments keep changing –– your strategies also need to evolve.

The ability to adapt is a crucial aspect of successful trading. For instance, the most profitable trading window right now is the first hour of the day.

Morning spikes and panic plays offer ripe opportunities, as well as my weekend strategy.

On the flip side, midday sessions have been pretty BLAH.

The crux of the matter is this: focus on what works best for you and be agile enough to adapt to the changing market conditions.

Becoming a millionaire trader isn’t about quick wins, it’s about a meticulous, dedicated, and patient pursuit. It’s about continuously striving for larger average gains, maintaining a higher win rate, and keeping a tight rein on average losses.

While challenging, this journey promises a reward worth the effort.

Over 30 of my students have joined the millionaire traders’ club by embracing this mathematical approach.

And if you, too, understand and commit to this journey – staying meticulous, dedicated, and patient – there’s no reason you can’t follow suit.

Now that you’ve tasted the formula…the only thing left is acquiring the education and knowledge to reach your biggest goals.

How much has this post helped you?

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”