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Trading Lessons

Ignore The Fed. This is What Matters…

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Written by Timothy Sykes
Updated 7/27/2022 5 min read

99% of the financial world’s only concern is The Fed and interest rates.

Don’t get me wrong, you should care about what they have to say. After all, they’re likely to affect the lives of everyone around you.

However, as a penny stock trader, I care more about the news and the setups right in front of me.

Right now, I’m seeing something VERY INTERESTING bubbling beneath the surface.

I saw it happen in VaporBrands International Inc. (OTC: VAPR) and Vertical Aerospace Ltd. (NYSE: EVTL).

And it could mean we’re in for a period of lucrative setups in the coming months.

I use this indicator not only to tell me when markets are heating up but also when they’re cooling off.

Its simplicity makes it ideal for any active trader who wants to know when to throttle up risk and when to pull back.

Here’s how it works…

Identify Former Runners

When I evaluate the market, I look at a basket of stocks that were previous runners.

These stocks either followed my Supernova pattern or simply had massive gains in the past.

For example, VAPR showed a multi-week run at the beginning of 2021.

More recently, the stock did the same thing, albeit over a shorter period of time and more violently.

Now, it’s popping off on HEAVY volume.

But that’s only part of the story.

After the initial run on July 15, the company released material news about a partnership with Ford to supply motors to the electric vehicle maker.

This helped keep shares trading at the upper end of their range. If another material news event hits the stock, it could send shares even higher.

Look for Outsized Moves

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The first two moves I highlighted in the chart of VAPR look fairly similar. Shares popped on decent volume with a multi-day run preceding the move.

The most recent move is wholly different.

You can see huge volume and a massive run in just one day. While shares briefly pulled back, they were given another boost by the press release.

That’s what I’m seeing right now.

Outsized moves, almost like how a stock makes a bottom.

EVTL is another great example.

Compare the first three spikes to the most recent one.

The recent spike came with heavier volume and remade it a multi-day runner!

That creates a lot of opportunity for dip buying setups.

But these aren’t the only two stocks acting this way.

I’m seeing a host of stocks across the board, from OTC markets to small cap Nasdaq plays, experiencing heavy volume and running for several days.

Earlier this year, most stocks were one-and-done. They would fall apart after the first spike.

Now, this isn’t as bullish as the start of 2021 when we’d see even the worst of the worst stocks soar for days.

However, it’s a notable difference from the entire first half of 2022.

Place it in Context

I also look at the broader market risk assets to see their performance.

If you look at the Nasdaq 100 index, which got throttled in the first half, it’s turned around nicely the last month or so.

Keep in mind, this is still a bounce in a downtrend.

However, the Nasdaq 100, a basket of riskier assets, has made a series of higher lows and higher highs.

But, if it can get over $312-$315, it has a lot of room to run higher.

And if you look at other risk indexes like the S&P Biotech Index (ARCX: XBI), its relative strength bodes well for many of these Monkeypox and pharma plays.

The Bottom Line

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Across the board, interest is growing in small-cap plays.

You need look no further than the increased chatter amongst promoters on social media to see the resurgence.

Heck, I’ve even seen headlines about Wall Street Bets and meme stock hordes pop up.

Now, this doesn’t necessarily mean that this will last for the rest of the year.

It may only give us a few months.

However, I make sure to prepare my students so that they’re all over them when these opportunities present themselves.

 

—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”