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Trading Recap

The AAOI Trade: Turning Losses Into Lessons

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Written by Timothy Sykes
Updated 6/26/2023 5 min read

Have you ever gotten into a trade that checked all the boxes?

Once you get in, it starts to misbehave…eventually forcing you to cut losses.

Moments after your exit…the stock blasts off.

But instead of profiting off the move, you’re on the sidelines, sitting on a loss.

Well, it happened to me in AAOI.

But instead of letting it trigger me into making reckless decisions, I learned some valuable lessons…lessons that I believe can help you become a better trader.

Especially if you’re constantly feeding yourself with negative self-talk.

My Weekend Trade In AAOI

If you’ve been following me closely this year, you probably already know that my weekend trade has been one of my better-performing strategies.

The Cliff Notes version of the strategy is this:

  • Upward trending price action heading into Friday’s close
  • The stock should have a catalyst. The later on Friday, the better.

With so many traders looking to shut it down early on Friday during the summer…a lot of news flow is overlooked.

I aim to find those overlooked stocks and then sell them on Monday when more traders read up on them over the weekend.

You can learn more about the strategy in detail right here. 

Anyways, AAOI has picked up a lot of momentum lately. The company announced late Wednesday that it entered into a 5-year supply agreement with Microsoft.

First off, that’s huge legitimizer news for AAOI. Anytime you can associate yourself with a powerhouse like Microsoft, it should boast well for your stock price.

Moreover, it is now being viewed as an AI play. The company is involved in optical modules and fiber optic networking…

And like Nvidia…AAOI was being looked at as a pick-and-shovel play…

Basically, you need them for AI to work. Or at least that is what traders are saying.

Shares did take off late on Wednesday in the after-hours, but then kind of died out on Thursday and Friday.

It traded in a pretty wide range…The stock hit a high of $5.67 and dipped to $3.59 by Thursday. It recaptured strength on Friday, and I saw that there was some support at $4.20ish…so I decided to take the trade for one of my weekend plays. 

Source: StocksToTrade

Here are my entry notes:

When Monday morning rolled around, stocks were mixed.

AAOI didn’t have that big spike I was initially anticipating.

I tried to hold on…but with the stock not moving the way I wanted it to…I bailed.

Shortly after I got out for a small loss…the stock started to rally hard past the $4.70s.

It would have been a beautiful trade. But All you can do is just laugh when something like this happens.

Unfortunately, most traders don’t.

Instead, they’ll:

  • Jump into the symbol again
  • Revenge trade
  • Overtrade
  • Put on bigger positions to make the loss up

Basically, self-destruct.

I’ve been there before and that just creates even worse feelings.

Although I would have loved to have made money on this play, I can take several positive takeaways from it.

For example:

  • I stuck to my plan.
  • I cut losses quickly
  • I didn’t follow up by trying to do anything reckless
  • I didn’t berate myself with negative self-talk
  • I’m fishing in the right pond

Believe it or not, there are lessons to be learned from losses.

Instead of beating myself up, I will take all the positives from the trade.

From an execution standpoint, maybe I could have entered the trade with a smaller size since it wasn’t my ideal setup.

But that’s easy to say in hindsight.

I’ve made a few bonehead trades this year…but this wasn’t one of them.

If you’re taking Ls…you must scrutinize your trades and determine what you’re doing right and wrong.

Most importantly, you must stay positive.

If you want help in developing a structured process, this is the program I recommend. 

It has helped +30 average folks on their path to becoming millionaire traders…who knows what it can do for you. 

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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. 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”