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Patterns To Watch

Can This Breakout Strategy Beat the Market?

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Written by Timothy Sykes
Updated 11/7/2022 5 min read

This may sound hard to believe…

But most traders already know at least one winning strategy.

If that’s true, then why isn’t everyone a millionaire?

Because they never give their ideas a shot to succeed.

In their minds, the right strategy leads to instant profits.

If Matt Monaco had thought that way, he wouldn’t have a 7-figure bank account.

You see, Matt didn’t find success right away.

As a college student, he believed trading could be a way out from getting a “real job.”

In 2017, Matt joined my Millionaire Challenge. Yet, it wasn’t until three years later that it all came together.

You see, the 2020 pandemic created the BEST trading environment in decades.

After markets bottomed in March, Matt leaned into his Breakout Strategy.

At our Trader’s Conference in Miami, Matt threw up the following chart:

And then he revealed something shocking…

The last time small-caps were this cheap was when the market bottomed in 2020.

That means breakout plays could fire up once again in the next few months.

Now, nothing is guaranteed.

However, I want to arm you with a simple breakout strategy courtesy of Matt Monaco.

This simple setup helped Matt become a millionaire trader.

And anyone can use it.

3-Step Setup

stock chart patterns screener
© Millionaire Media, LLC

Matt didn’t reinvent the wheel.

Instead, he took what was already out there and made it his own.

Let me show you what I mean.

This is a chart taken directly from Matt’s presentation during the conference.

I added the orange arrows to draw your eye to the pattern.

The setup is pretty straightforward.

The three elements are:

  • A strong move higher
  • Decent volume
  • Sideways consolidation that holds near the highs

From there, all Matt does is find a decent entry level and ride the next thrust higher.

Here is another example from his presentation.

The initial push on this chart took a full day rather than all at once.

As long as the move is significant, that’s all that matters.

Now, stocks need to hold those gains, whether over one day or multiple days.

If stocks start to pull back, giving up more than half their gains, then it’s likely to continue falling.

Context Matters

© Millionaire Media, LLC

Traders use consolidation patterns like these all the time.

Most of them never find success.

So, how did Matt succeed where others failed?

That’s where the ‘art’ of trading comes into play.

During late 2020 and through most of 2021, small-cap stocks tended to run for days.

Multi-day runs meant Matt could buy small pullbacks and wait for the breakouts.

His win-rate went up, but more importantly, the amount he won per trade jumped significantly.

Matt combined a common breakout pattern with the right market environment to score his biggest wins to date.

Many of my other students did incredibly well in late 2020 and early 2021 because they saw the same opportunities.

This is one of the critical components every trader needs to succeed.

Markets aren’t stagnant. They go through cycles and structural changes.

People move from exuberance and fear and back again. That’s a cycle.

When too many short sellers entered the market about 5-7 years ago, I stopped short selling.

That was a structural change.

Traders need to pay attention to the stocks, players, and playing field.

If Matt’s right, plenty of breakout trades will be coming soon.

But there’s no reason to jump the gun on this one.

While there have been some multi-day runners like Meta Materials (OTC: MMTLP), it’s not as common as it was last year.

That’s why I’ve kept my position sizes small as I test different areas of the market.

Right now, I’m not looking to make huge gains.

In fact, being up over $100,000 on the year, I want to protect my profits.

So, what would make me change my tune?

First, I want to be in the right part of the year.

Markets tend to do better from November through May.

Second, we need to see the broader market find a bottom.

The chart for the S&P 500 doesn’t look that bullish.

But it will find a bottom at some point in the near future.

Lastly, I want to see several weeks and then months of small-cap penny stocks and OTC names go for multi-day runs and Supernovas.

I’m talking like a dozen or more, on a regular basis, all pushing higher.

That’s when I’ll change my tune.

And that’s when I expect Matt’s breakout plays to become monsters.

—Tim


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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

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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”