Can Mistakes Make You a Better Trader?

I was just talking to Mari — my first female millionaire student — and we hit on something HUGE that I want to share with you today.

Mari is a great example of a student turned master who is giving back by teaching others.

Mari’s guiding principles?

• Grind every day and STAY HUMBLE.

• Be willing to adapt.

• Use trading tools to track opportunities. (Have you seen my XGPT tool? Details here.)

• Keep learning every day.

But when we were talking the other day, she reminded me of another vital trading tool: making mistakes.

Check this out…

3 Mistakes That Made Me a Better Trader

One mistake I made early on (and I’ve seen a LOT of traders make) is…

No. 1: You can’t fake it.

Let’s say your account is growing in a hot market. But it’s only because of the hot market, not because of you.

And because you don’t have proper risk management, when the market changes, you lose everything.

I managed to navigate the big shift when the dot-com bubble burst. But I still lost more money than necessary.

Why? Because I didn’t know how to cut losses quickly right away.

I was making money in a hot market and when it changed, suddenly I was losing money.

You can’t fake it because eventually the market will expose your strengths and weaknesses.

That mistake is also kinda beautiful because you find out a lot about yourself (but you have to get introspective and blunt about who you are).

No. 2: Never go all in, even when you’re confident.

My first six-figure win was in college.

The company was ISCO International (formerly Illinois Superconductor). The stock was delisted from the AMEX in 2010 after years of financial struggles.

Here’s the chart from December 1999 to May 2000…

Source: StockCharts.com

ISO, 6-month, daily-candle, my first six-figure win.

You can see the big gap up on the chart in March 2000.

The company announced it was going to be on TV over the weekend. So, I thought, “Okay, this is going to be a hype play.”

It was already up from $5 to $17 on the week. I bought roughly 10,000 shares.

That was about three-quarters of my net worth at the time. That was stupid (and I DON’T recommend it).

I thought I could make $10,000 or even $20,000. That would have been my biggest gain ever.

But instead, it gapped up to $27. I made six figures in one day as a college freshman.

Another mistake I made was due to pure naivety…

No. 3: Never fall in love with a company.

My best friend’s dad had a company called Cygnus eTransactions Group, Inc. It traded under the ticker CYGT.

I believed in the technology (I had restricted AND unrestricted stock).

I was so invested because Cygnus had deals with AOL, Expedia, Six Flags, Universal…

It was an amazing company, right? Unfortunately, falling in love with the technology didn’t save the company from failing.

And as the company was failing, the stock kept going lower, but I couldn’t sell my shares because it was so illiquid.

Eventually, my best friend’s dad got thrown out.

The new CEO, Stephen K. Brown, looked at me over coffee (with a straight face) and said, “Don’t worry, Tim. Your investment is fine.”

A few weeks later, I found out he’d bought the company out of bankruptcy, changed the company name, and somehow kept all the contracts.

Later, he sold it for $100 million.

I was right about the technology, but I didn’t anticipate such a sleazy CEO (I wasn’t cynical enough).

I lost roughly $1 million. It was a tough lesson.

You have to expect the worst out of every company and every management team.

But that mistake helped me develop the plan where I only trade liquid, volatile stocks.

Mistakes Make Us Better Traders

You will make mistakes.

There’s no avoiding it.

No one wants to hear it, but you know it’s true: Trading has risks. Most traders lose.

It takes hard work and dedication to become a successful trader.

Every successful trader develops solid trading risk management skills.

Discipline is key. Without it, you’ll never be able to stick to the rules.

Study hard, LEARN from your mistakes and never risk more than you’re willing to lose.

If you have any questions, email me at [email protected].

Cheers,

Tim SykesEditor, Tim Sykes Daily