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Trading Lessons

Prepare for a Market Crash

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Written by Timothy Sykes
Updated 5/12/2022 6 min read

Hey Trader. Tim Here.

Last November, I made a bold call — prepare for a market crash.

Click here if you don’t believe me…

So far, it’s playing out EXACTLY as I predicted.

Market sell-offs tend to cause businesses to make layoffs and traders to lose money…

…so I’m not happy that I was right about it.

My warning was meant to help people prepare for the dangers I saw coming…

Of course, when you nail a call like that, people want to know what’s next.

What are my current thoughts?

Here’s what I think: The price action doesn’t lie. This market is heading lower.

And just like I tried to protect folks back in November, I’ll do my best here.

Before I continue … I must tell you … my FIRST LIVE IN-PERSON event of the year is a few weeks away, and I have another serious prediction to make…

Markets Haven’t Found a Bottom

I don’t care that inflation has supposedly ‘peaked’ or that momentum tech stocks are incredibly cheap.

I’ve said it before and I’ll say it again … price action doesn’t lie.

Check out the daily chart for the Invesco QQQ Trust (NASDAQ: QQQ), which tracks the Nasdaq.

The white trendline shows where the markets hit their lows a few months ago.

What happened when we hit that spot in the last few weeks?

The QQQ traded straight sideways for days … then, it slid further on heavy volume.

Yesterday, we talked about panic buying and capitulation.

This isn’t it.

Volume increased but markets didn’t show signs of a reversal.

Instead, they fell and stayed down. All the folks in the ‘buy the dip’ crowd disappeared.

At some point, indexes will violently bounce back. However, to find a true bottom, markets need to create more panic.

That’s why I cut my position size.

Reduce Position Size

KISS = Keep it simple, stupid.

Reduce your position size.

I talk about this every day for one important reason — to remind myself.

It’s so easy to forget that the market is choppier than it was last year, let alone a few weeks ago.

But remembering this is essential to surviving any difficult market.

Plus, when you see larger price swings, you can get the same profits with a smaller size … simply by looking for better targets.

For example, if a stock that trades for $1.00 typically sees a 10% range, it’ll likely trade between $0.90-$1.10.

Now, let’s say volatility doubles, and the stock now trades in a 20% range, or $0.80-$1.20.

I can achieve the same maximum profit (and loss) by cutting my position size in half and widening my target (and stop-loss) by 2x.

Pretty basic stuff.

But now, I want to let you in on a little secret…

Test the Waters

© Millionaire Media, LLC

Markets will return to ‘normal’ at some point.

But when they do, they might look and feel completely different.

That’s why I’m ‘testing the waters’ with tiny trades every day or so.

These tiny trades help me connect with the market to get a feel for the price action.

Plus, it keeps me involved. That way, when the market does turn, I’ll not only sense it — I’ll be able to participate.

Here’s a good example…

2020 and 2021 were the years of SPACs and meme stocks. They provided some of the best long trading opportunities in a long time.

Now, they’re duds.

Additionally, a lot of the high-flying biotech names have taken a hit.

Just look at electric vehicle stocks, or cryptocurrencies, and notice how poorly they’ve traded over the past month.

When we emerge from this downturn, it’s unlikely these former players will be the new front-runners.

That’s why I continue to watch different indicators including:

  • Relative strength
  • Sector strength
  • Volume
  • Recent news

By no means is this a comprehensive list, but it’s a good place to start.

And let me make one more point…

I don’t need to spend a lot of money to test the waters.

Simulated accounts work just fine. Or, I can trade just a few shares.

There is no reason to take normal positions in these test trades. And frankly, it’s bad risk management if you do.

The goal isn’t to make tons of money off of these trades. It’s to prepare yourself to take advantage when the dust settles and clear trends present themselves.

Tools to Help

tim sykes and kyle williams on laptops
© Millionaire Media, LLC

I want things to be as simple for traders as possible.

That’s why I want to share a few recommendations…

First, the StocksToTrade Breaking News feature is hands down the best. Analysts curate the news, highlighting opportunities and even pointing out chat pumps.

The second is the StocksToTrade Platform itself. It includes some incredible charting features and scans that quickly and effectively identify trading opportunities.

And lastly, my Supernova Pattern.

This pattern helped me earn my first million dollars. But what’s even cooler is that it identifies stocks and sectors seeing huge interest.

Plus, you learn HOW to trade these for some killer profits.

Do yourself a favor and check it out.

—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”