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Trading Lessons

Understanding News & Volatility

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Written by Timothy Sykes
Updated 10/13/2022 5 min read

In 1636, Amsterdam hosted the first market bubble in recorded history.

Tulip bulbs became a statement of fashion and wealth.

A year later, the exorbitant prices reached for less than a pound of flower petals crashed back to Earth.

History is a powerful teacher if you know how to listen.

In yesterday’s newsletter, I warned everyone that the CPI data could wreak havoc on markets.

Unfortunately, price action validated my suspicions.

This is the premarket chart of the S&P 500 ETF (NYSE: SPY).

Now some of you are probably like, “Well, markets bounced back, so you made a bad call.”

Except I wasn’t calling for markets to crash.

If you read yesterday’s blog post, you’ll notice that I said we could crash from here.

However, the more important takeaway was to stay safe and avoid taking unnecessary risks.

You see, not all news events are created the same.

It’s up to us as traders to determine their importance and do so quickly.

Because being late is just as bad as getting the analysis wrong.

Now, I offer extensive education to my students about this subject.

I teach them how to zero in on the key points of a press release and determine its value and directional bias.

That might seem like a lot of work, but it’s much easier than you might think.

I want to offer some key insights into how to analyze and trade news that I learned over years of trading and teaching.

These can help you manage your risk and maximize potential gains.

Take a Step Back

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Penny stocks like to dance to their own beat.

But, they are still influenced by the broader market just like every other stock.

It might seem crazy to some folks that I would worry about government inflation data when I trade OTC stocks.

Yet, when powerful moves hit, they can take everything with them.

That’s why I always have an idea of the major market events for each week.

You can find these calendars online quite easily.

Most major events include Fed speakers, employment reports, inflation, etc.

Here’s what you need to know about these macro data reports.

They only matter when the market cares. And the market tends to only care when things are bad.

Think back to before the pandemic. Can you recall anyone discussing inflation?

No. No one cared because we hadn’t seen any inflation for more than a decade.

Towards the later half of the last decade, job markets were so strong unemployment reports barely budged stocks.

The market back then was sitting on a beach at 5 p.m. with a Piña Colada in its hand.

Today, stocks are running on zero sleep, kids screaming in the background, and rent is past due.

You can literally feel the tension.

That’s why every macroeconomic data announcement holds so much sway over the market.

And as yesterday’s CPI price action demonstrated, it doesn’t mean things go in a straight line.

If I could describe this market in one word, it would be CHOP</\em>.

We see lots of swings in both directions. These get even wider and less predictable around news events.

That’s exactly why I told my students to keep position sizes small or even sit out altogether.

Don’t look at these huge market moves and think, “Man I wish I was a part of that.”

Look at them and say, “I’m glad I didn’t get ripped apart by that swing.”

Look for Promoters

what should you include in your trading plan
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I make no secret that I use promoters to my advantage.

These folks range from professional marketers to outright scammers.

But if you follow them, you can find opportunities in low-priced stocks.

Every morning, I look for stocks with news catalysts using our Breaking News feature in our StocksToTrade platform.

This team does a fantastic job of only delivering stock-moving stories.

If you don’t have it, I highly recommend you take the trial. It’s cheap and gives you a chance to take a test drive.

Promoters aren’t hard to spot. You can find them on Twitter or any other social media platform.

These folks talk up the stock regardless of whether there is a news story or not.

I like using these guys in my 7-Step Penny Stock Framework to trade panic dip buys.

You can combine news releases, promoters, and chart pattern frameworks like my Supernova to identify key points where tradeable opportunities could arise.

Promoters love to talk up garbage press releases to generate interest in a stock.

I use this to my advantage to trade alongside them for quick gains, knowing that their pumps will eventually fail.

The thing to remember with any news event, whether it’s a major earnings release, or a simple penny stock press release, the trade opportunities are after the news comes out, not before.

I can then watch the reactions and use my patterns and price action to guide my trading.


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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”