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Trading Psychology

3 Steps to Unemotional Trading

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Written by Timothy Sykes
Updated 7/13/2022 5 min read

I love talking about trading with anyone, anywhere.

While I was out in Las Vegas for a LIVE TRADING EVENT with millionaire student Roland Wolf, I met up with Brad Lea, an amazing entrepreneur who runs the Dropping Bombs podcast.

We covered a host of topics, and he’s just a great guy to chat with.

Early on in the interview, I talked about my time as a hedge fund manager when I lost $1 million.

Back then, I only had $3 million to my name, so it was a big hit to the pocketbook and the ego.

Yet, it taught me one of the most valuable lessons I ever learned…

Never fall in love!

You see, every time I became emotionally involved with a stock, I lost perspective.

Even when the market threw up clear sell signals, I rationalized my behavior and held onto losing positions that got worse.

Thankfully, I no longer look at things the same way.

I developed a new mindset that helped me and my students drive more consistent trading results.

And it takes just three simple steps that anyone can implement.

Step 1: Price Action Reigns King

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My hedge fund days were brutal. Movies like Wolf of Wall Street don’t really do justice to the amount of time and energy you pour into the work.

It’s why these money managers struggle to come off a position. They worked incredibly hard to analyze and dissect the fundamentals and story behind whatever stock they were looking at.

So, who wants to be bothered by a little thing like price action?

The housing crash in 2008 illustrates this.

Condos that were once worth $250,000 sold for $50,000.

You could actually buy that condo and rent it out for $1,000 a month, getting a 24% annual return on your investment.

The problem was too few people could afford to buy that condo.

I remember people complaining that their home was worth more. Any asset is only worth what someone is willing to pay for it.

A diamond-encrusted chair isn’t worth squat if the people willing to buy it make minimum wage.

Every stock I encounter, no matter the story, is only as good as its price action.

Evofem Biosciences Inc. (NASDAQ: EVFM) is a great example that I talked about during the podcast.

I used Roe v. Wade news as a catalyst for the trade. But that was it. I didn’t care about the company’s cash flows or future prospects.

All I saw was a story, a stock, and bullish behavior on the Friday of the news.

In fact, this next step is a crucial step to aligning your mindset to proper risk management.

Step 2: Expect Stocks to Disappoint

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Never expect a stock to run. Always assume it’s going to fail.

This isn’t a cynical mindset but a risk management strategy.

One of the first lessons I teach my students is to cut losses quickly.

This serves two purposes.

First, it’s simple risk management and avoids big losers.

Second, it helps me reset my mind and avoid becoming too attached to the stock.

For the first half of 2020, I made a bit more than $80,000. Yet, few of my trades were anything special.

It was a lot of small wins that added up over time.

By thinking that a stock would fail, I narrowed my focus to the best setups and waited for my entries rather than chasing them.

When I got into trades, this mindset helped me lock in profits sooner.

However, this didn’t prevent me from taking advantage of runners. Using price action as my guide, I’d let stocks push higher when volume came in while dropping positions when they floated sideways.

Step 3: Focus on Decision Making

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Every time I get into a trade, I expect to win.

I can’t control whether that happens or not.

The only thing in my control is the decisions I make: where to enter, my position size, the profit target, and stop loss.

Traders can make the right decisions and still lose. It happens all the time.

But over time, with a winning strategy, if you stick to the plan and execute it correctly, profits will come.

Now, the tough part is determining whether you have a good plan or not from the outset.

That’s why my Supernova pattern is a great place to start.

Not only is it easily identifiable but offers multiple ways to trade it based on your style.

Click here to learn more about my Supernova Pattern.

—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”