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Patterns To Watch

Can You Improve Your Odds Before Your Order’s Entered?

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Written by Timothy Sykes
Updated 9/15/2023 6 min read

Have you ever seen an amazing setup, but refused to take it because you were on a losing streak? 

You didn’t want another loss to put you in a deeper hole. 

And while that might sound responsible or even logical….

It’s the WRONG way to trade. 

Losses happen all the time. It’s part of trading.

Focusing on your P&L won’t make you a better trader.

Instead, I want you to focus on everything that happens BEFORE you hit the bid.

These are the top elements every trader needs to work on if they want to improve their trading in the long run.

Focus on Your Decisions

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Can you control where a stock goes once you enter a trade?

Neither can I.

And there’s no crystal ball that will tell you the answer either.

Trading is an exercise in risk management and probabilities.

All we can do is stack the odds in our favor as much as possible and adjust our risk accordingly.

It’s like playing Texas Hold’em. 

You can start with pocket Aces, but there’s no guarantee you’ll win by the end.

Heck, sometimes you can lose with the best hand multiple times in a row.

However, if you make the right decisions over and over, eventually, the odds will work in your favor.

So, what do I mean by focusing on the right decisions?

That comes down to four key areas:

  • Chart patterns
  • Setups
  • Entry signals
  • Execution

Chart Patterns

I focus largely on penny stocks making parabolic moves.

In fact, I’ve got it down to a science known as my 7-Step Penny Stock Framework.

The framework tells me where a stock is in its parabolic lifecycle.

After all, I know most of these companies eventually go under.

Since I know that what goes up must come down, I match my setups to the parts of the 7-Step Lifecycle.

Once I have the pattern, I then move on to the setup.

Setups

The setups I use aren’t complex 

Typically they fall into three categories:

The trick is knowing when to look for the setup based on the pattern.

For example. Let’s say I’m watching a hot stock like Canopy Growth (NASDAQ: CGC).

As it makes its initial run, I’d look for breakout trades and panic dip buys.

On the back side, I’d only look for panic dip buys.

This is why I’m a big fan of panic dip buys. They tend to work anywhere in the Supernova pattern.

Between the setup and entry signals is also where I determine my size.

I choose my risk based on how volatile the stock is, the price of the stock, and the overall market.

For example. If a stock is up 100%, I put $1,000 on the trade risking 5%. But if a stock is up 50%, I would need to increase my size if I lower my risk to 2.5%.

As a rule of thumb, your position size should be based on loss management. Figure out how much you’re willing to lose on each trade and calculate your share size based on that number given your potential entry and stop loss (which we’ll talk about next).

Entry Signals

Once I know where I’m at in the pattern and which setups apply, I then look for my entry signal.

Here’s an example of a morning panic dip buy in WeWork (NYSE: WE).

Shares doubled the day before and held pretty close to their highs.

All I wanted to see was a morning panic dip into support, which is exactly what happened.

This wasn’t anything fancy. Just a well-thought-out plan.

I saw the pattern and chose the appropriate setup.

Then, I waited for my entry signal, watching the support level and the price action.

Execution

The last step, which is where most traders focus their attention, is on the execution.

However, this should be pretty straightforward if you’ve done all the pre-planning.

With WE, all I had to do was execute my buy order once I saw shares dip and bounce back a little.

From there, I kept a tight leash on the trade, not wanting to let it drop much further because my number one rule is to cut losses quickly.

Fortunately, I rode this trade for some juicy profits.

Crafting the Perfect Plan…For You

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Creating a trading plan isn’t hard. Yet, most traders struggle because they don’t know where to start or what to include.

But more importantly, they try to create a trading plan they think I want to see.

Every trader is different.

I don’t expect you to trade exactly like me.

My goal is to make you the best trader YOU can be.

That’s why my upcoming LIVE Strategy Session is designed to teach you how to take these fundamental steps that happen before you enter a trade and tailor them to YOU.

Click here to reserve your spot.


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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 (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”