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Trading Lessons

4 Signs It’s Time to Exit a Trade (Even if You Don’t Want To)

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Written by Timothy Sykes
Updated 9/1/2023 6 min read

Very few things feel worse than seeing a trade you’re up in…all of a sudden turn sour.

Have you ever caught yourself staring at the screen, praying for a turnaround, even when all signs scream… GET OUT?

I’ve been there. It’s a silent battle between hope and reality, and it can obliterate not just your account but also your spirit.

But what if there were clear signs to guide your exit?

A lifeline amid the chaos?

Settle in because I’m about to share the four undeniable signs that it’s time to cut your losses (or take your profits), ensuring you trade smarter, not harder.

Trading Shouldn’t Be Stressful

You will feel the heat when you rush trades, come unprepared, and overleverage.

But let’s talk about when things aren’t going your way…and when it’s time to bail out of a trade.

#1 Price Action Weakens

If you’ve been reading my blog, then you already know that I primarily take long positions.

My favorite pattern to trade has been dip-buying heavily shorted penny stocks.

But before I get into any trade, I have a plan.

If I’m buying something, then I want it to go up, right?

If it doesn’t right away, that means my thesis is wrong.

That’s why I don’t hesitate to cut losses quickly.

But I’m also bailing on a trade if it stalls too.

Some traders will wait for a position to go red on them. But if I’m aiming for a quick spike up, and it isn’t happening…then I’m wrong. I don’t need the stock to move against me to exit.

You don’t want to be a bag holder.

If the price action weakens, don’t be someone who hopes and prays things turn around.

One thing I’ll do is jump into a stock more than once. Why stay in it if I think it is weak when I can sit on the sidelines and get a better entry later?

It’s not uncommon for me to trade the same symbol 2 or 3 times in one day.

Pay attention to the price action. It can help you realize a shift is occurring before the price drops.

#2 Change In Stock Volume

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How often have we seen a stock pop hard in the pre-market, only to fade once the market opened?

It seems like it happens every Friday, right?

On the other hand, the best plays often churn like crazy…with the volume trading the float several times over.

When the volume dries up, spreads can widen, and more importantly, it’s easier for the stock to sell off sharply on just a few orders.

If you’re like me, you need momentum for quick profits.

#3 Breaking of Key Support or Resistance Levels

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While I don’t swing trade and primarily focus on quick-day trades, that doesn’t mean I ignore a stock’s history.

I often look at daily, weekly, and monthly charts.

Why?

Because I want to know where long-term support and resistance levels are.

I want to know where the buyers are and where we might start to see selling pressure.

With that in mind, I don’t necessarily get out at whole numbers or exactly when support or resistance is broken.

Why?

Because I know algorithmic traders are trying to take advantage of newbies…

They know where they set their stops…

So it’s easy to flush a stock down, get all the longs out, and then spike the stock back up.

And that’s what I’m looking for when I’m panic dip buying.

#4 The Fundamentals Shift

Last week, NAOV was trending so nicely…

Each dip created a buying opportunity.

However, late in the afternoon, the stock cracked.

But I didn’t care to dip buy it again.

Why?

Because the fundamentals changed.

The company announced a $5 million private placement.

The same thing happened in ADTX last Thursday.

It went from $20 to $83…

But when it announced a $10 million private placement…the play was more or less over.

That’s why you must be keeping up with the latest news.

When the fundamentals shift, be ready to exit.

What’s Your Next Play?

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If you struggle with exiting bad trades, start making a trading plan and learn how to stick to it.

Trading isn’t about winning or losing.

It’s about making money.

Stop trying to be right all the time.

If you’re looking for ways to take to level up, then I’ve got something for you.

Every day, my team and I host live training classes.

In these training sessions, we talk about the hottest moving stocks, market psychology, and the latest trends we see working.

Best of all, we bring them to you at zero cost. 

They are spread out throughout the day, so I’m confident there’s a time slot that fits your schedule.

CLICK HERE TO REGISTER FOR OUR NEXT LIVE CLASS


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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”