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Patterns To Watch

Reviewing a Perfect Penny Stock Breakout

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Written by Timothy Sykes
Updated 12/28/2022 6 min read

Breakout trades are one of the most popular setups out there.

They’re also one of the hardest to master.

Jump in too early, and you risk a fakeout.

Wait for confirmation, and you might miss the move entirely.

Yesterday’s blog post offered some tips on breakout trades.

Today, I want to take you inside a trade I posted in the chat room.

All my trades are posted on Profitly for the viewing public.

GlycoMimetics Inc. (NASDAQ: GLYC) has been on my watchlist since it first started its run in early November.

Unlike most penny stocks which fade after the initial run, GLYC held its gains.

I know a lot of breakout traders who bought into the fake break a few weeks ago.

But I wasn’t fooled.

There was something specific I wanted to see.

And here’s what it was.

Don’t Take the Fake

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Picture a brick wall in front of you.

Now, imagine you have a sledgehammer to break through the wall.

Your goal is to make a hole that allows you to step through.

After a few swings your arms get tired so you take a break.

You start again and suddenly make a small hole.

Excited, you swing like a maniac but don’t make much more progress.

So, you take another break before going back at it.

Eventually, you chip away but keep yourself calm.

Slowly and methodically, you break down the wall until you finally have a hole to fit through.

But man, are you tired!

This is what it’s like for a stock to break through resistance.

It takes time before it can make the next move.

That’s why there’s often a fake break through resistance once or even twice before the real move.

In the GLYC 30-minute chart above, you’ll see how shares consolidated sideways for weeks before making an attempt to break out.

If a stock doesn’t keep running off the initial move or within a couple of days, it often needs to consolidate before continuing higher.

You can find a similar pattern in Meta Materials (OTC: MMTLP) from November 14.

After making a high in October, shares pulled back before creeping higher.

Yet, they stopped at the high and took a week of testing and trading near the level before breaking out.

And that’s the key here.

I want to see several tests of the high before banking on a breakout.

An Inside Look

the bottom line on support and resistance
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Let’s dig into the execution to see how I managed the trade.

The high put in on the initial run was $2.43, while the fake break got up to $2.50.

The high from the previous day was $2.41, which was also the high from the 21st.

Also, the close from the previous day was $2.24.

This one-minute chart has white lines at $2.41 and $2.50.

Shares opened at $2.39, up 2.2%.

That’s not huge, but it put it close to the highs from the previous day.

Price quickly broke through that on heavy volume after the first three minutes of light volume.

Since GLYC already tested the highs multiple times over the past few weeks, it stands to reason it would break through on enough volume.

So, I jumped in at $2.45 with a stop on the day’s lows of $2.35.

My goal was a 10% move which would get me to $2.70.

Shares never got that high, topping out at $2.64.

I cut my position at $2.58.

It wasn’t a huge win…but that’s ok.

The pattern and setup were there, supported by price action.

Key Points to Remember

Tim Sykes tosses his book An American Hedge Fund in the Alps
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I chose this setup for several reasons:

  1. Shares tested the highs multiple times
  2. The stock opened higher
  3. Price broke through key resistance on decent volume
  4. Like most stocks on my watchlist, this was one heavily promoted

Sometimes breakout plays come up short of my goals. Other times, they become monsters like MMTLP.

You never know what you’ll get, which is why it’s important to understand the setup, manage your risk, and cut losses quickly.

Not every trade will work.

But when you select setups and stocks that meet the right criteria, it greatly improves the odds of success.


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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”