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Trading Lessons

Winning by Losing: Turning Trading Losses into Lessons

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Written by Timothy Sykes
Updated 7/5/2023 5 min read

Fear…Uncertainty…and Doubt.

At some point along your journey those thoughts will creep into your mind.

Newbie traders often trip up by fixating on immediate gains instead of focusing on learning, studying, and embracing the process.

Last week, I hit a rough patch with six losing trades in a row! Sounds like a confidence breaker?

Not for me.

I’m about to share three ways to turn losses into potent lessons and level up your trading game.

 

#1: Acknowledge and Learn From Losses

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There are almost 8,000 trades on my Profit.ly. 

Unlike most traders you’ll find on social media…I don’t hide from my trades.

Scroll down and you’ll see wins and losses.

And while I’m not happy with myself when I take a big hit…I don’t sweep those losses under the rug…I pick them apart and try to dissect what went wrong.

Yes…it is not a fun feeling…

Yes…it sucks.

But…

You have to figure out what you did wrong and what you need to do to fix it.

Sometimes you can lose on a trade and it can be bad luck.

I’m not really talking about that. I’m talking about the losses that you know you messed up on.

Doing things like:

  • Getting overly aggressive
  • Overtrading
  • Making decisions on FOMO
  • Impatient

The more you’re aware of your flaws…the easier it will be to correct them down the road.

One thing that really helps me is journaling my trades.

Things I like to include are:

  • My entries
  • My exits
  • Reasoning for the trade/catalyst
  • Risk vs. reward
  • Overall market conditions

I want to figure out how I can be better next time. It’s not about degrading myself or having negative self-talk.

A trading loss is an opportunity for me to improve.

#2: Exercise Patience and Discipline

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If I’m trading poorly the last thing I want to do is to overtrade my way into getting better results.

Instead, I will try to laser in and focus on my absolute best setups.

If you’re a newbie that might mean you have to study more.

My top student, Tim Grittani, was not profitable during his first nine months…and that’s also true with Jack Kellogg, who failed to make money in his first year trading.

It’s not unusual for me to take the day off from trading and just watch the market after experiencing a bad loss or go through a rough patch.

A good way to stay disciplined is again to review your trades. And constantly remind yourself of your strengths and weaknesses.

If there’s a strategy you’re not good at then trade it small or paper trade it. You should try to lose as little as possible as you’re learning.

#3: Focus On Risk Management

top penny stocks list Tim Sykes on a cliff in Italy with a laptop
© Millionaire Media, LLC

I preach cutting losses quickly.

But if you’re in a losing streak then sizing down and practicing is also a viable option.

I don’t get shook if I lose a couple of trades in a row…or even six like I did last week.

Why?

Because I have an established track record. 

But if you don’t have a track record yet then your confidence struggles during losing streaks.

Don’t trade then…study…and build your confidence up.

Risk management is not about avoiding losses – it’s about managing them.

It’s about taking control of your trading journey and ensuring that your losses are kept in check.

It’s about making sure that a minor slip-up doesn’t snowball into a major disaster.

It’s about safeguarding your portfolio and ensuring your longevity in the game.

Final Thoughts

tim sykes standing in a crowd
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Earlier this year I suffered one of my worst losses in years…

I was not happy about it. But I knew it was an opportunity for me to improve.

If you want to improve as a trader and are unsure what it takes to go to the next level then I encourage you to…

===> CHECK THIS OUT. 

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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”