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Trading Recap

FAZE – A Simple Dip Buy Trade

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Written by Timothy Sykes
Updated 9/4/2022 5 min read

People get this idea in their heads that trading penny stocks is high risk.

The way they talk about it, you’d think I mortgage my house on every trade.

The truth is successful penny stock traders find more consistency than most other styles, including buy and hold investors.

My style generated a 77% win rate over nearly 7,500 trades.

All my trades are posted for everyone to see right here

Students who join my millionaire challenge are amazed when they see this LIVE!

At first, it looks like magic when I pick off the bottom of a stock that’s dropped double-digit percentages from its highs.

But there’s a method to the madness.

You see, I don’t just look at one price or one indicator to select my entry, I use multiple data points to make my decision.

FaZe Holdings Inc. (NASDAQ: FAZE) is a great example.

Although I didn’t win the trade, the theory and analysis were correct.

Let me take you through the steps so you understand what I look for and how to apply to your own trades.

Important Prices

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Every day, the market offers up support and resistance levels for anyone to use.

There are four every trader should mark on their charts:

  • Close
  • High
  • Low
  • Open

Of the four, the opening price is the least important but still reliable.

Do yourself a favor.

Whenever you analyze a chart, mark these prices for each day.

This is what it looks like for FAZE.

The orange line represents the open from the 29th. I gave that one a different color because it comes in at almost the same price as the low from the 30th.

Each of these levels CAN act as support or resistance.

It doesn’t mean that it will.

We’re identifying spots where the odds increase that a stock’s momentum will stop.

Now, let’s zoom in on the price action from the 31st.

The orange line represents the prior day’s close at $18.22.

I also drew a white arrow to the premarket trading right before shares exploded higher.

In and around that area should act as support when the stock dropped from $21.

If you wanted to be extra cautious, you could wait for a break of $18.00.

Now, take a look at the chart below and the candlestick in the white box.

Heavy volume combined with a long tail signals a potential bottom, especially at an important price.

This same phenomenon worked on the 30th against the high of $19.14 from the 11th.

Unfortunately, the bounce on the 31st wasn’t enough to really generate a profit. So, I stopped out at a small loss.

However, you can see how the exact same setup and concepts worked the day before.

Risk Management Is Crucial

what are penny stocks the bottom line
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Had I traded the bounce from the 30th, I would’ve made a nice 5%-10%.

With my trade on the 31st, I lost $0.10-$0.15 — small potatoes compared to the possible gains.

It’s why the very first thing out of my mouth during any training session is to keep losses small.

Some traders feel that means they stop out of trades too often.

That can happen.

But as my win rate shows, with practice, you’ll be able to improve your performance, get better entries, and know what to expect.

That way, when a stock fails to produce a bounce, as FAZE did on the 31st, you can feel confident taking a small loss.

Practice analyzing the charts and the price action around the four important prices.

Pay attention to how quickly and forcefully a stock hits these prices.

As we saw in FAZE, you should notice that the most violent reactions occur when a stock moves from further away on heavy volume.

Remember, this is just one of many patterns I teach. Each adds another tool to your belt.

Eventually, you’ll have enough to trade as often as you want and be confident in your trades.

—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”