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Trading Recap

Why I Cut $BXMI

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Written by Timothy Sykes
Updated 7/28/2022 5 min read

Humans have a natural avoidance of pain. And it’s no different in trading.

Most traders fear losses more than they enjoy their wins.

After trading for 20+ years and teaching thousands of students how to profit in any market, I can tell you one thing with certainty…

No one can avoid taking losses in the market.

Losers are just as much a part of trading as winners.

What puts my millionaire students above the rest is how they handle losses.

They’re masters at recognizing patterns and can quickly determine when a setup has failed or is ready to go. And it’s that skill that allows them to bail on failed trades before things get too bad.

However, it’s one thing to talk about it. It’s another to SHOW it…

Which is why I want to dig into my Brookmount Explorations Inc. (OTC: BMXI) trade.

Although the chart formed a great pattern, I ended up taking a loss on the trade.

But from this loss, there are a couple of great lessons here that can help you reduce losses in the future.

The Background

Before I dive in, I want to note that I took two trades in BMXI.

One was an overnight swing trade (top), while the other was a day trade (bottom).

Let’s start with the pattern I saw in the chart.

Like any other major news event, earnings can act as a stock catalyst.

However, the earnings need to be solid. A lot of times, promoters will pump a stock’s earnings when they’re actually garbage, which I avoid.

Additionally, I don’t typically jump in on the first day. I give it a day or two to see how shares react.

As I noted in the top comment box, there was decent social media chatter, with one tweet below calling for the stock to go to $7.00.

The Setup

Let’s start with the swing trade first.

Ideally, I wanted to see the stock continue its push higher into the third day.

However, it’s important to look at the broader market context.

At the start of 2022, stocks pulled a lot of one-and-done days. They’d start strong and fade into the close or on the second day.

It’s only been recent that I’ve seen multi-day runners. And as I noted in yesterday’s article, I can see this type of price action continuing for the next several weeks.

I like to enter these trades on a dip, which is how I got into the trade on Wednesday.

I got in at $0.09 and was looking for a move to $0.11-$0.12 with 25,000 shares.

The stock closed around $0.10.

Thursday, shares opened up around $0.09 and then quickly pulled back.

For day trades, this is a great setup for a morning panic dip buy that can snap back in the other direction.

So, I did two things.

First, I added 45,000 shares to my swing trade position at $0.075 for a total of 70,000 shares and an average price of around $0.08.

Second, I entered a new day trade with roughly 65,000 shares at $0.0725.

Unfortunately, the stock failed to produce another bounce.

Instead, it drifted lower.

Sticking with my #1 rule, I cut both positions for a loss.

Let’s take a look at the one-minute chart from Thursday and walk through what I saw.

For the most part, shares did what I would expect from a panic dip buy – they moved lower on increasing volume.

Shares initially made a low around 10:20 a.m. and then bounced for the next 30 minutes.

I expected that bounce to continue.

Instead, the stock immediately faded from VWAP and did so on increasing volume.

That’s a sign of heavy selling pressure.

Rather than hold and hope, I dropped both positions quickly.

Typically, when I buy into a dip, I want to see the stock bounce immediately. I consider the setup failed not only if the stock drops but if it trades sideways.

Watching the price action and level 2 data for buy areas helps me identify the best prices to jump in, where I can lean against a wall of buyers to stop a stock’s slide.

That’s why I can walk away from many of my trades with a small profit even if they don’t work out.

Final Thoughts

I teach my students to recognize these patterns so they can tell whether a setup is playing out correctly or failing when they look at the price action.

The faster they can assess that, the better they get at managing their losses.

–Tim


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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

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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 (205) 851-0506 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”