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Patterns To Watch

A Simple Pattern Market Open Pattern

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Written by Timothy Sykes
Updated 5/19/2022 5 min read

Hey trader. Tim here.

The reason why most traders are losing money in this market isn’t that they can’t find good trades.

It’s because they can’t sit on their hands.

They’re getting wrapped up in the emotions of trading, watching their P&L take wild swings in a news-driven market.

Whenever the market makes me feel uncomfortable, I don’t try to be a hero. Instead, I reduce the size of my positions and trade smaller.

It might not sound exciting, but it’s how I’ve racked up over $7 million in trading profits during my career.

That’s why I’m happy to wait for my opportunities — A+ setups that I’ve learned over the years to bring me consistent returns.

Which will be a key focus for my All-Day Trading Mastery Class this Friday.

As luck would have it, one of my favorite patterns came up when I was trading RedBox (NASDAQ: RDBX) yesterday.

sykes profitly trade

While I only walked away with a $160…

This setup offered the perfect opportunity to teach you a great way to analyze and trade the open.

Stock Selection

Every trade starts with a stock.

But I don’t want any old stock.

I like to pick from companies with low floats that are former runners.

Low-float stocks don’t have a lot of shares available to trade in the open market. So when a buying frenzy hits, the price tends to move higher pretty quickly.

One great way to look for these stocks is using the StocksToTrade screener.

I know that most brokers include scanners in their platforms.

However, most aren’t geared towards the premarket and they don’t screen for low floats or scan the news like StocksToTrade.

 I absolutely love this tool!

I look to my watchlists to find those ‘former runners.’

Even when I’m busy helping to build schools in Bali, I still take time out of my day to update my watchlists.

It might sound like a hassle. But five minutes now saves thirty later.

Many of these stocks surged on previous news or were former Supernovas.

Lastly, while it isn’t required, I like to see stocks trade up into the open. A bullish premarket often leads to bullish behavior at the open.

The RedBox Setup

RDBX fit these parameters nicely yesterday.

As you can see in the daily chart below, the stock kept its heavy, news-driven volume in the past few weeks.

Yesterday’s action came after a pretty significant run for the stock into the close on Tuesday.

Take a look…

There are two white lines on the chart.

The lower one sits at Tuesday’s closing price. The higher one marks the after-hour high from Tuesday.

Both of these levels are important.

I’ve talked about how breaks over these prices can cause short squeezes, especially in stocks with low floats.

When you combine this with a strong close from the prior day, it can lead to bullish behavior for the next trading day.

So I wanted to wait for a break of those highs as confirmation.

Ideally, the stock breaks the highs, trades sideways for a few minutes, and then continues its push higher.

Here’s how that occurred in RDBX.

After the first candle broke the highs on heavy volume, the second candle held nicely. As the third candle began to form, I took a long position at $4.06.

I wanted to see the stock start to push higher quickly.

Unfortunately, it stalled for a few minutes. And that’s when I decided to cut my position at $4.14.

With this setup, I got in on the breakout and knew I would stop out if the stock broke down.

I didn’t expect that to happen since the price started to make what looked like another push higher…

However, I didn’t see the panic buying frenzy that I expected. Typically, when these stocks get momentum, they keep going for several minutes.

Shares could’ve consolidated before moving higher.

However, the volume was declining.

Plus, the price made a reversal candle on higher volume that nearly matched the early breakout move.

That clued me into something — shares weren’t ready to continue higher.

If they were, the volume would remain high and eventually launch the share price into the stratosphere.

Final Thoughts

This is a simple breakout setup. It doesn’t require much, just practice and patience.

Pay attention to what the market tells you. Use all of the information at your disposal.

If you’re looking for one ULTIMATE PATTERN then I’ve got just the ticket for you.

Check out my Supernova Setup.

 

—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”