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Trading Lessons

Why I’m Proud to Trade Like a Coward

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Written by Timothy Sykes
Updated 2/8/2023 5 min read

We all want to catch that big runner…picking off the bottom tick and riding it to glory.

In reality, folks who try to do this lose their shirts.

They shoot for perfection and land in failure.

Instead, I teach my students to take predictable, repeatable setups using time-tested blueprints like my 7-Step Penny Stock Framework.

For me, it’s more about trading consistently than swinging for the fences.

That’s why I focus so much on risk management.

A lot of people think I’m a coward for the way I trade.

Honestly, I’ll embrace that title.

Because if you don’t survive, you’ll never thrive.

That’s why my #1 rule is to cut losses quickly.

However, that also applies to taking profits.

You see, I know what I’m good at and what I’m not.

My comfort zone is picking up 5%-10% gains over and over like a casino, not squeezing all the juice I can out of one stock.

This might surprise you, considering I’ve traded for over two decades, made millions in the market, and helped 32 of my Millionaire Challenge students become millionaire traders in their own right.

But let me show you why I prefer to trade conservatively and some alternative methods.

Then, you can choose the risk management that’s right for you.

A look at Environmental Tectonics Corp. (OTC: ETCC)

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Late Tuesday afternoon, our Breaking News team alerted me to a catalyst in ETCC.

I prefer to take trades near the open. However, a solid news catalyst on the right stock can create an opportunity in the afternoon.

But here’s the thing…

The later in the day these trades form, the riskier they become.

Sure, a runner can push all the way into the close.

It can also top out and crash.

This was my trade execution in ETCC.

Let’s start with my entry.

I waited for a pullback dip before I entered the trade rather than buying as it ran higher.

This is a conservative way to trade for two reasons.

First, it ensures you entry isn’t at the high of the day.

Second, buying into a pullback that consolidates gives you something to trade against.

If you look at the small range formed just before my entry, you can see the low is a touch below $0.60.

So, my risk is about as tiny as it gets.

However, it’s relative to the total move made by the stock.

$0.01-$0.02 could be huge.

But in this case, that’s negligible compared to the $0.40 move the stock already made.

Now, let’s turn to exit.

When I took the trade off, I did so based on two key factors:

  1. The level 2 data indicated the stock was losing momentum
  2. The price action started to reverse

It turns out that it wasn’t the top.

However, I want you to think about this in mathematical terms.

I win about 75% of my trades.

My total risk was about $0.01, but let’s be generous and say it was $0.05.

When I’m up $0.155, I’ve earned more than 3x my risk.

In fact, that risk reward relationship is so skewed towards my reward that I’d only need a 25% win-rate to break even.

From a pure profit perspective, it simply makes sense for me to trade scared.

Now, you may not hit a 75% win-rate starting out.

But if you take trades with the right risk/reward relationship and adhere to your stops, you could win 33% of the time and still turn a profit.

Maximizing alternatives

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Some traders like to scale out of trades as they hit profit targets.

This lets them capture more profit potential on big runners.

If this appeals to you, I would keep things simple.

Take more than half the trade off at your first profit target.

Then, set a stop loss for breakeven on the remainder.

As the stock rises, continue to scale out, cutting your remaining position in half each time.

And each time you exit, raise your stop loss to the last profit target level.

This method, or similar, ensures you protect your profits while leaving an opportunity to maximize your potential.

People may call me a coward because I don’t swing for the fences with every trade.

But my trading account is full and grows consistently.

For me, that’s plenty.

—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”