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Trading Psychology

Why Smart Traders LOVE a Fear-Filled Market

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Written by Timothy Sykes
Updated 1/24/2023 7 min read

The choppy market has a ton of traders FREAKED.

Not me. I love it.

In fact, I’m rooting for even MORE panic.

I know — it sounds counterintuitive. But a scary market can actually create incredible opportunities.

It’s all about having the right strategy and resources to find and take advantage of them.

Every day trader’s a little different — that’s why it pays to expose yourself to a number of different trading styles. The more knowledge you absorb, the more you can refine your own strategy.

Stay calm. Get informed. BE PREPARED! Act now.

Here’s why smart traders look forward to ugly markets…

The State of the Stock Market

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I’ve been warning my Trading Challenge students about a market correction or crash for MONTHS.

Not because I want to scare anyone, but because I want traders to be PREPARED.

Well, it finally happened…

After a week of falling off a cliff, the market put in a nice bottom on Monday and came back. It was only the sixth time the Nasdaq has reversed a 4%+ intraday drop to close green since 1988.

Tuesday started with another gap down before finding another bottom and … another bounce.

This kind of price action makes for a very tricky market.

My Game Plan for Trading a Choppy Market

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What we’re seeing this week brings up something very important.

It doesn’t matter to me whether the market tanks or bounces, but this price action isn’t ideal. The best way to describe this week’s selling action is choppy.

That’s exactly why I’m hoping for a big panic. Let me explain…

Max Panic and Max Euphoria Lead to Predictable Patterns

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This market’s been way overextended for the past two years. And the sell-off the past week is real damage. But there hasn’t been max intraday panic that I like.

Check out the QQQ (PowerShares Nasdaq ETF) intraday chart from Monday.

QQQ chart: Jan. 24, 2022 intraday, choppy sell-off and bounce (Source: StocksToTrade.com)

Even as it sold off around noon, there was a lot of fight.

That kind of choppy action doesn’t work for me. It makes dip-buying more difficult. It’s too easy to make common dip-buying mistakes. And that means I’m not as aggressive.

If I saw max panic, I’d be more aggressive.

That idea translates directly to individual stocks. To see what I mean about max panic, check out the Integrated Media Technology Limited (NASDAQ: IMTE) chart — also from Monday…

IMTE chart: Jan. 24, 2022 intraday, example of max panic (Source: StocksToTrade.com)

Now THAT’S max panic. That’s what I’m looking for.

IMTE fell from $11.60 to $8.02 in 20 minutes with two volatility halts. The panic was fast enough for stop losses to get taken out. If this had been an OTC (with no volatility halts) it probably would have gone even further.

The point is, if something’s dropping, I’m looking for max pain.

The more pain, the better chance it has of bouncing. 

I probably wouldn’t have held through the choppy bounce you can see on the chart. But I’m constantly learning from plays like this.

I keep running my StocksToTrade scans, watching Breaking News Chat alerts, and studying charts like these so I can be prepared when I see similar plays.

That’s the BEST way to be prepared to pounce when a great trade comes along.

The Power of Looking for Extremes

Just like I look for max pain if something’s tanking, I’m looking for max euphoria if a stock is spiking. Look at the IMTE six-month chart…

IMTE chart: 6-month, daily candle, max euphoria, max panic (Source: StocksToTrade.com)

Now you can see what set up Monday’s bounce. The fact it went from the $4.40s to $12.82 in seven trading days meant a ton of traders were watching it.

Even while the Nasdaq was selling off last week, IMTE was a multi-day runner. On Monday, as the Nasdaq was fighting on the way down, IMTE had already started to bounce. Yes, it was choppy. But it was bouncing.

In case you’re wondering … I didn’t trade IMTE on Monday. I missed it. Why?

You’ve Gotta Stick to Your Patterns

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Even with max panic and a more predictable pattern, IMTE still didn’t fit two other indicators that are part of my strategy — price and time of day.

I prefer lower-priced plays. And I prefer the panic to be earlier in the day. So it was the perfect kind of pattern but too high priced and the wrong time of day.

I go for high-odds trades with limited risk. Remember, you can be wrong on any play. And losses aren’t the end of the world. If it doesn’t do what you want, get out.

But keep looking for max euphoria and max panic type situations. Learn from them so you can be prepared to take advantage of them in the future!

What do you think about the choppy market? Leave a comment and let me know if you’re rooting for max panic, too!

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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

* 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 (888) 878-3621 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”