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Getting Out: 3 Ways To Safely Land An Exit

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Written by Timothy Sykes
Updated 12/11/2023 6 min read

What do stocks like Micro Algo (NASDAQ: MLGO)

Safety Shot (NASDAQ: SHOT)…

…and WEBUY Global (NASDAQ: WBUY) all have in common?

They’re all penny stocks that jumped over 100% in a single day.

And I traded all three of them.

I’ve been teaching about and trading penny stocks for over two decades.

Most people are afraid to touch penny stocks because they don’t know how to exit a trade.

And it’s costing them a chance to play great setups like these.

What these folks don’t realize is you don’t need to be exact on your entries and exits.

All you need to do is adhere to three key principles that tell you when and where to exit a trade.

To prove that point, I will not only tell you about those principles, but show you how they applied to some of my recent trades.

#1 – Follow the Price Action

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Price action is like having a personal 3D map of the market.

It tells you what’s happening right now based on not only where the price was, but how active it was.

I use this information to help me determine not just where buyers and sellers are stepping in, but how many there are.

Take my Monday trade in Innovative Eyewear (NASDAQ: LUCY).

I entered the trade using my Morning Panic Dip buy pattern.

Now, I want you to look at where I exited.

Notice how volume increased substantially. Yet, the price of the stock changed very little.

That tells me buyers are losing strength.

Why?

Because for all the transactions taking place, there are enough sellers to meet buyer orders at these prices.

If there weren’t, you’d see volume and price increase rapidly.

Quite simply, if volume increases and price goes nowhere, then whatever direction price was moving is probably going to stop if not reverse.

#2 – Reading History

I want to take this same trade and zoom out a bit.

I highlighted three times where price ran up to around $0.60 and got rejected.

Using this knowledge, it made a lot of sense for me to put my profit target at or near the same level.

Could the price bust through the 4th time?

Sure. But it also might not.

All I know for certain is that price is important. So, why not keep things simple and use it for my profit target?

When you combine that with the price action, it starts to make sense why the 4th time shares hit that $0.60 mark, volume was so high. I wasn’t the only one with this idea.

And when you see the stock fall apart shortly afterward, it confirms my suspicions that buyers were losing their strength.

#3 Look at the Context

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In my experience, penny stocks are more likely to trade independently than other assets.

But they are still influenced by similar stocks.

As I watched LUCY trade, I also had my eye on Psithea Therapeutics (NASDAQ: KTTA), Assure Holdings (NASDAQ: IONM), and a handful of other popular penny stocks.

All of them failed to hold their gains.

By mid morning, every one of them was well of their highs, fading into the afternoon.

Compared to the last several weeks where stocks fired off multi-day runners one after another, these type of lackluster interest across the board tells me I need to be on guard.

It’s a sign that I need to tighten up my trades, reign in my risk, and look to close out the year on a high note.

So, instead of looking for the upper end of the usual 5%-10% I shoot for on my day trades, I’ll start to take exits at the lower end.

Far too many traders assume you just go for the same profit target every time.

Paying attention to the market you’re in is just as important as the stocks you choose to trade.

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Navigating the volatile world of penny stocks can be a daunting task.

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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”