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What makes a good morning bounce?

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Written by Timothy Sykes
Updated 6/3/2022 5 min read

Nothing makes me happier than seeing my students surpass me.

Last Thursday, I was lucky enough to share the stage with Mark Croock, one of my top students.

Mark introduced his Shadow Trades strategy, which I have to say is incredible!

The way he knows right before a stock is about to drop is the closest thing to magic that I’ve ever seen.

What’s incredible is that Mark started with the same setups I teach every day, like the morning panic.

Thinking back to when he started, I distinctly remember a question he asked…

What makes a good morning bounce?

I realized that in order for traders to ingrain this into muscle memory, they need to know how to time these setups.

For that, I lean on price action.

Now, I talk a lot about ‘price action’ with my students. However, not everyone understands what that means.

It’s a pretty ambiguous term, I agree.

So let me explain how I look at it and use it with some examples.

Price Action in Action

When I talk about ‘price action’, I’m referring to the relationship between volume and price.

Breaking them apart, price is all about how something trades.

We know that each candlestick represents a high, low, open and close.

I analyze the each candlestick in relation to the prior ones.

Take a look at this one-minute chart of Wikisoft Corp. (OTC: WSFT).

The left arrow points to a candlestick that made a long tail.

Essentially, the stock opened, ran higher, then fell back down to close right at the open.

Given this happened at a high on the day, it tells me sellers have determined this is where you may go and no further.

The right arrow shows a large red candlestick where the stock closed below the low of the day at that point and at the dead lows of that particular candlestick.

I would read this as sellers in control with few buyers stepping in.

Now, let’s bring in volume to the discussion.

You can think of higher volume as adding more emphasis to a particular candlestick. However, it has to be taken in context. Generally speaking, the open and close of the day see the heaviest volume. So, high volume there doesn’t necessarily mean as much.

Now, let’s take that same chart and highlight the volume.

Here’s what’s interesting…

Notice how the volume on that third candlestick spiked above the prior two.

That’s like taking my read on the price movement and adding an exclamation point onto it.

So, it’s no surprise that candlestick was the high for quite a while.

Now, take a look at the volume on the large red candlestick.

It is growing and much greater than the last 15 candlesticks or so. However, it’s still lower than the volume near the open.

But the next two candlesticks are where things get interesting…

That’s where volume spikes hard for two minutes straight while the price of the stock stops dead in its tracks.

After such a sizable move lower, that tells me buyers stepped up to the plate and are preventing the stock from heading lower.

In fact, this is EXACTLY what I used to determine my entry into the stock because as a morning panic play, I expected the price to reverse in the other direction.

Another way to boost your confidence that a spot may hold is to look for support.

This can be as simple as marking swing points on the chart for the last several sessions as well as the daily closes.

Take a look at the chart below I marked up…

You can see in the white box where the entry I took lined up with the close from the prior day.

These don’t always have to be exact but in the general ballpark.

Final Thoughts

If you struggle to read price action, try breaking it apart as I did above. Look at the price first and then the volume.

It also helps to develop a narrative about what buyers and sellers are doing.

Ask yourself who’s in control, the buyers or sellers, as well as how many of them are there.

When you’re ready to take your trading to the next level, step up and take my Trading Challenge.


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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

* 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”