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Trading Lessons

Use This to Benchmark Your Trading

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Written by Timothy Sykes
Updated 9/7/2022 5 min read

Only one thing mattered when I ran a hedge fund – performance.

It was all about how well I did compared to the other guy.

While that’s fine for hedge funds, it’s a terrible mindset for traders.

When I highlight the success of my star pupils like Mike Hudson and Tim Grittani, it’s not because I want you to compare yourself to them.

It’s because I want you to SEE WHAT’S POSSIBLE!

But you can’t get there with a hedge fund mindset.

Only one benchmark matters – YOUR PERFORMANCE.

You should be focused only on what you’re doing and no one else.

I know from personal experience how hard that can be.

We all get FOMO reading chat posts or watching the market run hard when we aren’t in a trade.

I ignore all that and focus on the key metrics to ensure I keep improving.

Start With a Log

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The only way you will ever be able to see whether your trading improved or not is by keeping a trading log/journal.

Otherwise, you’re relying entirely on memory.

Anyone who is interested can look up every trade I take right here on profit.ly.

That’s also where I house my trading metrics.

Every trade I log contains the following pieces of information:

  • Entry Price
  • Exit Price
  • Date/Time
  • Symbol
  • Shares

That’s it. You don’t need to capture anything more.

In fact, most brokers provide a downloadable list of transactions on-demand, usually for tax purposes.

Along with those data points, I also drop in notes as to why I took the trade and executed it the way I did.

In the example above, I also included the stop area.

Using this information, I can calculate the following measures:

  • Win Rate
  • Average Profit
  • Average Loss
  • Average Position Size

Interpreting Your Results

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Every trade we take has what’s known as an expected value. This is what I should make on average over time, wins and losses included.

As long as that number is positive, I’ll make money.

The expected value is calculated as follows:

EV = (Win Rate x Average Win) – (Loss Rate x Average Loss)

The average loss is just 100% minus the win rate.

Based on my stats, we get the following expected value:

EV = (77% x $1,630) – (23% x $1,129) = $995.43

That means every trade I take, assuming I take an average position size, I make $995.43.

You’ll notice in my stats box above that my win-rate comes in just above 77%.

With such a high win rate, my average losses can be greater than my average wins and I would still make money.

In fact, my average loss would need to exceed $5,450 before I would start losing money.

The higher my win rate, the less I need to make on an average win vs my average loss.

If my win rates are lower, I need to make more per average win.

The Fundamental Fix

forward stock split - bottom line
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Let’s say I’m new to trading and have yet to turn a profit.

The first thing you want to check is your win rate.

You need to improve your win rate if you win less than 40% of the time.

That means focusing on better setups until you get above 50%. Ideally, you want to get to 60% or above.

The only way to make money with a win rate below 50% is to achieve an average win greater than your average loss.

But as my metrics show you, I have a high win rate, and average wins greater than my average loss.

So you can have your cake and eat it too.

How is this possible?

Keep your losses small and fast.

I say this over and over.

But let me put it in practical terms.

Assume I achieve a decent win rate of 65% but still lose money overall.

I want to focus on reducing my losses without hurting my win rate. Or I can try to increase my average wins.

However, I found it easier to reduce your average loss without hurting win rates by focusing on getting a better entry.

It All Starts…

With the right setups.

No one needs to beat their head against the wall trying to find repeatable patterns.

I’ve already done the heavy lifting.

Get my #1 pattern that helped me earn my first million trading.

How much has this post helped you?

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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

* 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”