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Can you spot the line in the sand? And FTX’s downfall

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Written by Timothy Sykes
Updated 11/8/2022 6 min read

No one wants to miss a profit party.

We hear about a friend of a friend who made 5x on this one stock or crypto.

Then another person…and another…

Eventually, FOMO takes the wheel and we dip our toes in right before they yank the rug out from under us.

Promoters work tirelessly to suck in victims at exactly the wrong time.

It leaves you holding ‘the bag,’ either buying before a crash or selling before the rally.

That’s why Inflection Points are so critical to trading, no matter what you follow.

It’s ‘that make or break’ spot where a chart holds the line or breaks through.

I used this concept to build my overnight setup in Meta Materials (OTC: MMTLP).

And it’s the VERY REASON FTX Token fell apart so quickly overnight when it cracked $22.

Once that cracked, it all broke down.

Faced with liquidity concerns, Binance, who originally dumped FTT tokens, came to the rescue and signed a letter of intent (LOI) to acquire FTX.

You can read about the deal here.

This is a crazy story we’ll hear more about in the coming days.

And it all started with one number – $22.

Inflection points aren’t hard to spot.

Yet, they are incredibly powerful when applied correctly.

And with a little common sense, they can help you spot trade opportunities and avoid huge pitfalls.

Identifying Inflection Points

Tim Sykes checking his top penny stocks list in Italy
© Millionaire Media, LLC

You’ve probably heard the terms support and resistance before.

They refer to levels that price should struggle to drop through or break above.

In the FTX saga, that was $22.

Last week, Coindesk published a story that triggered concerns that FTX’s subsidiary, Alameda Research, relied too much on illiquid tokens including FTX’s own FTT token.

Binance, a crypto exchange, began dumping shares, sending the price of FTT plummeting.

Alameda tried to stem the bleeding by offering to buy tokens for $22.

That worked until it didn’t.

$22 became a key inflection point for FTT.

If price held $22, it meant traders believed FTX.

If price broke $22, it meant they agreed with Binance.

Traders sided with Binance.

Source: CoinMarketCap.com

Inflection points arise from prices investors and traders deem important.

They can be based on technicals, qualitative information, or both.

Typically, you find them at highs and lows, although areas of consolidation can also form these points.

For example, my trade setup in MMTLP was a combination.

In the daily chart below, you’ll see price come up to $7.50, the previous high, and hold for several days.

From a short-sellers perspective, breaking over that high would signal a failed trade and cause them to exit their position, likely creating a short squeeze.

Dig into the intraday chart, and you’ll find more evidence of bullish behavior.

As I watched the MMTLP in the late afternoon, I knew that if the stock continued to drop, it would likely keep falling.

However, it quickly reversed, indicating buyers stepping up to the plate.

These are all technical reasons for the setup off the inflection point.

Yet, if you turned to Twitter and other social media platforms, there were promoters galore.

These folks helped pump the stock and create the setup for the overnight swing.

Here’s the thing about inflection points. They can take a while to break down.

Plus, the longer price sits next to the level, the less likely it is to hold.

As a trader, you can use this to form different setups.

For example, if a stock comes into a key inflection point for the first time, I could take a trade in the opposite direction.

But as it hits that same level again and again, it becomes more likely price will break through.

On MMTLP, that would mean if I was a short seller, I could take that first hit of $7.50 to trade in the opposite direction.

In fact, that produced a nice little scalp trade if you were so inclined.

Since I’m not into short trades, I would rather wait for the stock to hold near that key level and play for a break higher.

It didn’t work out the first time, but the longer it holds here, the more likely it is to break through.

Final Thoughts

Tim Sykes teaches penny stock trading from the stage
© Millionaire Media, LLC

Inflection points are great places for newer traders to cut their teeth.

They’re easy to spot and provide a wealth of information to practice your analytical skills.

All of my students learn this and so much more from my Millionaire Challenge.

With thousands of hours of video and content, you’ll have everything you need to become the trader you want to be.

Sign up for my Millionaire Challenge today.

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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

* 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”