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Penny Stock Basics

7 Steps to Mastering The Panic Dip Buy

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Written by Timothy Sykes
Updated 12/28/2023 7 min read

Every morning I lay out my watchlist into three groups. 

The first is the previous day spikers… which consist of stocks I like playing for potential breakouts. 

The second is pre-market spikers. These are your large percentage gainers with unusual trading volume. 

And the third is multi-day runners. These are stocks that have experienced a solid uptrend…and stocks I would potentially look to get long if I see a panic sell off near the open. 

The bigger the intraday panic…the better!

And it’s a pattern I’m seeing working a lot in this micro-cap mania.

And today I’m going to share with you the 7 steps to mastering the panic dip buy.  

Step #1: Understand The Pattern 

The key is to identify strong catalyst stocks that have experienced strong multi-day runs. 

As for trading them…I’m waiting for the perfect storm. 

A stock that’s been climbing suddenly takes a nosedive at or around the opening bell.

For further details on the pattern, watch the video below: 

Step #2: Prepare for the Big Dip 

Successful trading isn’t just about recognizing patterns…you also have to be ready to act. 

This means keeping an eye on these stocks and waiting patiently for that big dip to occur. 

For example, I traded the ticker symbol UP four times. 

No, it wasn’t random…and I wasn’t revenge trading. 

In fact, UP, along with tickers MIGI, ALT, LMFA, and ABSI were all on my top multi-day runner watchlist. 

Before the opening bell, I knew I might be interested in playing these stocks if they experienced a big morning panic sell off. 

One thing that I knew was UP, had a history of making quick bounces off panic morning sell offs. 

So I wanted to be ready in case it happened again. 

Here’s how I traded UP:

Step #3: You Must Strike When The Iron Is Hot

I’m generally expecting a quick snap back after the panic sell off. That means once you see the price experience a panic sell off…you must be ready to move. 

Yes, it is absolutely scary.

That’s why you size correctly…and you prepare to cut losses quickly. 

That said, the window to move is short.

Step #4: Selling Smart

Yes…some of these moves can be absolutely wild…with shares rising 200%. 300%, and even 1000% intraday. 

But I’m sticking around that long. I’m thinking about safety at all times. I’m looking to make a quick 5-10%, sometimes I do better, but I don’t try to get greedy. 

Getting greedy can lead to other emotional pitfalls. 

And then before you know it…you turned a nice winning trade into a devastating loss. 

Step #5: Study, Study, Study

Right now this pattern is crushing it. However, that isn’t always the case. And that’s the thing you must know about trading. It’s never constant. There are always things that are changing. 

That’s why it pays to study your past trades and to do your homework.

Step #6: Be Disciplined

Sometimes you’ll get the urge to buy a dip instead of waiting for the PURE panic…

Or miss your entry and chase up at a higher price. 

Those are avoidable mistakes. To help reduce them, create rules for yourself and follow them. 

In addition, you want to be disciplined when it comes to your risk management. If the trade isn’t working then you must be willing to cut losses quickly. 

Last thing you want is to be a deer in the headlights while the stock is nosediving. 

Step #7: Patiently Stalk

I may have five to ten stocks that fit my panic dip buy setup. But I may only trade one or none of them. 

In other words, you’ve got to be patient with this strategy. 

You want to wait for pure panic…and if you don’t see it…then don’t force other trades. 

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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”