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Trading Lessons

Give Your Trade Context

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

I wish profitable trading was a matter of hard work.

But the truth is it’s all about Smart Work!

Let me give you an example.

Before becoming a multi-millionaire trader, I was an avid tennis player and pretty darn good.

While I’d play anyone who was up for it, I preferred to go up against much better players that could beat the snot out of me.

No, I didn’t get some kick out of losing.

But playing against better players forced me to improve on the weakest parts of my game.

The best tennis players I know don’t just play the game from their perspective. They take a wider view, analyzing their opponents, the weather, and other factors most amateur players never consider.

Traders who stick with one time frame and a small set of stocks prevent themselves from seeing the bigger picture.

Understanding and interpreting context is as important as the trades themselves.

Without it, you’re like a car driving down a highway without a map.

While this might seem like a daunting task, it’s actually easier than you think.

Look at The Stock’s History

what are outstanding shares
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2021 was a trading bonanza.

Between SPAC mergers and meme stocks, a stock went Supernova every few days.

These same stocks can develop incredible setups months or even years later.

Planet Resource Recovery Inc. (OTC:PRRY) is a recent example where news sent this stock running on heavy volume.

While I didn’t expect shares to skyrocket as they did before, the fact that this stock was a former runner made it ideal for a day trade.

I can also use a stock’s intraday history to forecast how it might move in the upcoming trading day.

Here’s an example with Trinity Resources Inc. (OTC: TRRI).

The chart below highlights points where buyers stepped in to buy the dip after a decent selloff.

Even if I missed the trades on day two and there, there was still a good one on day four.

Looking back at how a stock traded gives us clues as to what it might do in the future.

Learn Your Phase

candlestick reversal pattern examples
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Let’s go back to the chart of PRRY.

My 7-step penny stock framework lays out the different movements one might expect from a stock like this.

As I note in the article, I’m not a fan of shorting these days, and certainly not a penny stock under $1.00.

That leaves me with dip buys that require precision timing.

In the chart below, I drew a box around the end of this Supernova’s lifecycle.

This is the backside of a Supernova. While many traders love to short this area, it’s one of my favorite spots to dip buy.

When shares plunge, promoters will try to pump the stock, creating massive swings in both directions.

I use this to my advantage by preparing and planning for my entries.

This only works if I understand the Supernova pattern and where I am in the life cycle.

Look Around You

why i buy breakouts
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I tell my millionaire challenge students there are some markets for earning and some markets for learning.

If you only look at the chart in front of you, you’ll never know where you’re at.

2021 was an incredible time to be a penny stock trader.

Risk appetite drove stocks from sub $5 to incredible heights in a matter of weeks.

In the first half of 2022, most stocks would die after the a one-day pop.

To understand the market environment, I look at how other penny stocks are performing and ask a few simple questions:

  • Are there multi-day runs?
  • Do shares hold near the highs after day one or fall apart?
  • Is there one sector doing better than others?
  • How much volume is trading on hot stocks?

All these questions do is help me categorize the current conditions.

In fact, I also take a broader view and look at the major market indexes like the S&P 500 and Nasdaq 100.

Penny stocks have a better shot at running hard when stocks are all heading higher than during a major selloff.

As you gain experience, you’ll find additional signals to help guide you.

Don’t be afraid to explore different indicators and try ideas. Just make sure that you spend as little trading capital as possible when you work on something new.

—Tim


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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”