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Trading Lessons

How To Survive a Market Selloff

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Written by Timothy Sykes Reviewed by Jack Kellogg Fact-checked by Ellis Hobbs
Updated 2/4/2026 5 min read
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The entire market is on edge right now …

See the Invesco QQQ Trust (NASDAQ: QQQ) below for a visual example. It’s teetering on support, and there’s a lot of open space below it.

Every candle represents one trading minute:

QQQ chart multi-day, 1-minute candles Source: StocksToTrade
QQQ chart multi-day, 1-minute candles Source: StocksToTrade

There are a few reasons for the weakness right now:

  • Fears of an overvalued tech sector continue to weigh on major names.
  • The precious metals sector just imploded.
  • Bitcoin broke below key support.
  • There’s a new Fed chair on deck.

And after months of bullish momentum in the market, we’re finally seeing some pullback across major sectors.

If you got caught up in the carnage … Don’t worry, you’re not alone. Here’s a post from one of my most successful students, Jack Kellogg:

Source

My process protects traders from these pullbacks.

Those who blew up after the most recent freefall, they weren’t following the rules. They got emotional.

Whether you start with $1,000 or $10,000 … Control your emotions and follow the rules now.

The rules exist for a reason.

Protect Against a Fallout

I always tell traders:

  • Don’t marry the trend.
  • Take profits into strength.
  • Cut losses quickly.

Every parabolic spike will eventually pull back.

Jack knows that. He’s an expert trader with $24 million in trading profits. The issue is: How do we take advantage of this strength and get out before it pulls back? And can you keep your emotions out of it?

The hottest stocks in the market like to follow a specific framework as they spike and ultimately crash.

It’s based on human psychology, fear and greed, which is why it repeats in the market over and over again. People have always behaved similarly during times of extreme emotion.

We see this pattern in the larger market from time to time. Like on the recent surge, crash, and bounce in precious metal prices. The hype and emotion can take hold in any corner of the market. But we see it strongest and most consistently among small-cap stocks. That’s where I focus most of my efforts.

Our job as traders is to recognize the emotion in the market from a third party perspective. We don’t want to get caught up in the hype.

The Framework

There are seven steps to the life cycle of a stock spike that’s driven by human emotion.

Sometimes we see stocks make this move on a multi-day timeframe, sometimes it’s intraday.

Here are the steps:

  1. Pre-spike base: Quiet consolidation and awareness building in the market.
  2. Breakout/first green day: The stock surges with high volume. Momentum traders pile in.
  3. Continuation/gap-and-go: There’s a follow-through session as the stock climbs higher.
  4. Blow-off top: The parabolic move reaches exponentially until it stalls.
  5. First red day (backside begins): The trend cracks. Bullish momentum completely fades.
  6. Panic washout: A capitulation flush creates potential morning panic dip buy opportunities for disciplined longs.
  7. Bounce/base rebuild: There are smaller and smaller bounces as the price fades. Then a new base forms to prepare for the next cycle’s steps 1 and 2. Past spikers can spike again.

See the steps laid out over a chart in this blog.

And compare it to the charts below of Gaxos.ai Inc. (NASDAQ: GXAI).

The first chart shows candles that represent one trading day, showcasing the multi-day framework.

GXAI chart multi-month, 1-day candles Source: StocksToTrade
GXAI chart multi-month, 1-day candles Source: StocksToTrade

The second chart shows the framework intraday.

GXAI chart multi-month, 1-day candles Source: StocksToTrade
GXAI chart multi-month, 1-day candles Source: StocksToTrade

Every spike is a little unique, like a snowflake, but you can’t deny the similarity of those charts.

And they’re on completely different time frames.

More Breaking News

That’s human psychology as it manifests in the stock market.

Trade Patterns That Repeat

You don’t need to be a genius or a math wiz to find success as a trader.

All it takes is discipline.

Discipline to study the same patterns over and over again. Discipline to stick to the plan as you size up. And discipline to cut your losses quickly.

Think you’ve got what it takes? Start on February 13.

I’m hosting a two-day trading bootcamp with two of my millionaire students, Bryce Tuohey and Matt Monaco.

Matt and Bryce learned my strategies while studying in college. And today they’re both millionaire traders.

On February 13 and 14, learn everything you need to know:

  • The patterns we use to trade.
  • How to execute those trades.
  • How to protect your account.

It’s completely FREE.

>> Reserve Your Spot Now <<

Cheers

 

*Past performance does not indicate future results

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Author card Timothy Sykes picture

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.
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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”