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Trading Lessons

Two ways to stop out of trades

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Written by Timothy Sykes
Updated 6/28/2022 5 min read

The last few days have seen a bonanza of trading opportunities.

Students of my mentorship program who followed my framework stayed patient while they waited for these choice setups.

But let’s face it, not every trade can be a winner.

I’ve taken my share of losses these last few months.

However, I make it a point to keep my losses small and take them quickly.

It’s a core part of my trading style and the Supernova Framework.

What many traders don’t realize is that there are two ways to stop out of a trade: price action or a hard stop.

I’m a fan of the former.

But I want to compare them both and show you when each is appropriate.

That way, you can choose the best one that matches your strategy.

Hard Stops

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Hard stops are the most common method for traders to use for stop-loss orders.

These are specific price numbers that when reached trigger an exit order.

Traders can either place these as ‘stop loss’ orders with their broker or enter them manually.

If you can, placing them manually is ideal, especially with OTC markets and penny stocks. Otherwise, you may be at risk of market makers moving stocks to trigger your stops, known as ‘stop hunting.’

However, for newer traders and those who struggle to adhere to their stop losses, sticking with stop-loss orders is just fine.

Placing stop-loss orders can take some practice.

There’s a balance between giving the trade enough room to work and taking too much risk.

One way to control this is by determining your stop loss and profit target and then managing your entry.

Let’s use my trade with Evofem Biosciences Inc. (NASDAQ: EVFM) from the other day.

I entered the trade near a support level around $0.37. My actual entry was $0.39.

The stock itself had been trading around $0.30 for the last few weeks. So that was my stop-loss spot for maximum risk.

This left me with a maximum risk of around $0.09.

Now, I couldn’t say for certain what my target was. But it’s fair that I wanted to see a break of the highs that day, which was at $0.50.

With an entry of $0.39, that gave me roughly $0.11 of upside potential to $0.09 of downside.

Keep in mind that is a minimum upside. I expected that if the stock broke that spot, which it did, shares would trade much higher.

Once I set up a trade where the reward is greater than the risk, if I win those 50% of the time, over enough trades, I’ll make money.

The greater the reward compared to the risk, the better I will do.

That’s why getting a good entry is so important.

Using Price Action

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Now, my preferred method of trading uses price action as a way to stop out of trades.

Instead of working with specific numbers, I look to see when momentum has slowed.

Price action is a core component of morning panic buys.

Let’s look at my trade in Protext Pharma (NASDAQ: TXTM) as an example.

Here, I waited until just after the open to buy into morning panic selling right near the prior close.

From there, I waited for the stock to rebound.

It was at that point I watched volume begin to slowly die out, even on the one-minute chart.

Once that happened and shares started to trade sideways, I felt it was time to exit the trade.

Conversely, let’s look at a trade I took in Sysorex Inc. (OTC: SYSX) from several weeks ago.

In this trade I bought the panic dip. However, I didn’t get a good price and the stock simply traded sideways from my entry.

That’s why I decided to cut the trade and move on.

You see, the morning panic dip buy relies on a rebound. Sometimes it’s big and other times it’s tepid.

By focusing on getting a great entry and then following the price action, I ensure that I drop the trade when the buying pressure subsides and lock in profits or small losses.

Final Thoughts

These methods aren’t mutually exclusive. You can incorporate both into your trading.

Regardless of which you use, make sure you have clear guidelines as to when and how to exit the trade.


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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”