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Trading Lessons

When Market Gives You Lemons, Make Lemonade

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Written by Timothy Sykes
Updated 2/23/2023 5 min read

My trading is off to a slow start in 2023, with about $22,000 in profits so far.

And while I wish I were doing better, I can’t control the market.

So instead of being frustrated, I view this slower market as an opportunity to learn and improve.

Congrats to all my students for learning every day:

One of the benefits of trading in a slow market is it’s easier to identify good setups from bad.

The key is staying disciplined and patient while waiting for the ideal setups.

If you’re trading with a small account and are under the pattern day trader rule restrictions, this market is a blessing because it forces you to take only the best setups.

You don’t have to be in a trade every minute or hour. But I want you to pay attention, focus on what’s moving, and be curious about why.

And be prepared.

Preparation is what led me to one of the easiest 20% gains I had ever made on Thursday. (I risked $4,120 in capital to make $824)

I’ll share with you:

  • What the trade was
  • Why I liked it
  • How you can get better at pattern recognition

The Gameplan

timothy sykes in matera in 2022
© Millionaire Media, LLC

Every day before the market opens, I lay out my game plan which I share with my Millionaire Challenge students.

I share my thoughts on the overall market and the ticker symbols I’m watching for potential plays.

I had my eyes on ticker symbols CLNV, AMIH, FAGI, and SRNE on Thursday.

Here are the exact notes I shared with my Millionaire Challenge students:

“CLNV, AMIH, FAGI, SRNE are the low priced plays I’m watching right now, none of them are aggressive buys for me, but potential dip buys into any intraday panics. We’re not seeing many solid multiday spikes so waiting for optimal entries is key, for example CLNV had a gap down and morning panic yesterday despite the previous day’s strong close/multi-month breakout, but after that gap down/panic, it also spikes 20%+ in a few minutes. Those kinds of moves are what I’ll be looking for on these plays again.

Many newbie traders will go into the trading day without a focus list. It’s easy to get distracted if you don’t know what to look for. And the chances of trading emotionally are significantly higher.

Of course, when you’re consistently profitable and more experienced, you can break some rules. But as a newbie, stick to rules-based trading and have a focused watchlist.

Going back to my watchlist notes, I noticed that CLNV had a gap down in the morning on Wednesday, creating an opportunity for a “panic dip buy opportunity.”

Source: stockstotrade

The stock had a quick 20% bounce after the morning panic sell.

I had CLNV on my watchlist because it had strong momentum and was in a breakout pattern.

Here’s what the daily chart looks like:

Source: stockstotrade

Seeing that the pattern worked for a panic dip buy opportunity, I was looking at other stocks that were breaking out with the idea of playing the same panic dip buy setup.

That’s one of the reasons why I had the ticker symbol FAGI on my Thursday watchlist.

The stock closed strong on Wednesday, going from a low of $0.0075 to a high of $0.0257.

Source: stockstotrade

Thursday morning FAGI sold off at the open…setting up for what I believed was a panic dip buying opportunity…and with CLNV fresh on my mind…I sprung into action…

Source: stockstotrade

I got my entry at $0.02 and was out at $0.024…

Making a quick $824 profit.

Takeaway:

  • Take an inventory of what’s working in the market: trends, setups, patterns, and catalysts. Trading penny stocks isn’t rocket science. Look for relationships and patterns, and you’ll be ahead of most traders.
  • Stay disciplined and patient. If you only take the best setups, you’ll crush it when the market heats up again.
  • Study. Study. Study. That doesn’t mean it’s a day off if you’re not actively trading. Study what you missed, prepare for the next day, and review your trading.
  • Looking to fasttrack your trading? Click here to get started.

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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”