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Why Some Traders Got Burned By $DFLI

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Written by Timothy Sykes
Updated 6/13/2023 5 min read

Avoiding potential disasters is just as crucial as finding winning trades…

Something most newbies don’t think about.

On Monday, some traders were able to capitalize on a StocksToTrade Breaking News play that soared 40%…

Yet, others were sitting in disbelief at how they could’ve lost money on this trade.

There’s a lot more to trading than simply buying a stock and holding on to it…

And I continue to remind traders every day of the dangers behind it.

That’s why today I’m going to share with you why I prefer to focus on this one pattern…

And tell all of my students to never buy and hold.

Why I Hate HODLING

On Monday, StocksToTrade Breaking News alerted me about Dragonfly Energy Holdings Corp. (NASDAQ: DFLI)

As the stock soared nearly 40%, many traders were chomping at the bit to get a piece of the pie…

But for some, catching these trades before they happen can be difficult, especially if you don’t have the right tools.

That’s why if I miss a Breaking News Play, I don’t let FOMO get the best of me…

Instead, I start focusing on where the best opportunity to dip buy is.

Let’s face it, none of us are perfect, even the most experienced traders out there make mistakes…

But when newbies see a stock that’s spiking, their first instinct is to simply buy and hold…

Ignoring other important indicators out there that could potentially signal a shift in the stock’s price movement.

I know how these penny stocks work, I never buy a stock without knowing what the risks are…

And If you’re looking to buy and hold, that’s one of the most dangerous games you can play.

Every day I remind my students about the basic principles they need to know when it comes to trading penny stocks…

A strategy that has helped me return 630% from 2020 to 2022.

Penny stocks can have very predictable patterns, that’s why I believe traders who study these patterns have a significant advantage over those who don’t.

Let’s break down my trade with DFLI, and why I knew there could be potentially more opportunities to capitalize on this play, even though I missed the initial spike.

Breaking Down DFLI

Here’s the Breaking News Chart for DFLI…

It’s important to remember when you get a news alert that you don’t dive in head first into the trade…

You want to be sure to see how the stock is reacting to the recent news.

Regardless of any trade I make,  I never tend to hold onto trades for an extended period of time, I like to take quick profits…

Trust me, it’s better to have locked in a 5-10% gain on your trade instead of risking it all just hoping for a few percent more…

Yet I see way too many traders buying into these big percent gainers as they are spiking 10, 20, or even 30% thinking their run has to continue…

And the longer you hold onto a stock, the more dangerous it becomes.

When it comes to penny stocks, I’m certain about one thing…

It will eventually panic.

It’s all a part of my 7-Step Penny Stocking Framework.

Spotting the top is difficult, and honestly, we never know how far some of these stocks could run…

That’s why I tell my students never to chase a stock, or hold,  but rather wait for it to present itself with a dip buying opportunity…

But not every drop in a price stock will result in a dip buying opportunity, I sometimes take another stab at it if I misjudged it.

Let’s take a look at the chart…

Source: StocksToTrade

As soon as the stock approached the $4.50 mark, the stock declined all the way to $3.70, nearly a 20% drop.

This is where I attempted to dip buy on my first trade, and ultimately the stock continued to fall so I made sure I cut my losses quickly.

Some traders at this point were doubling down, and holding hoping that the stock would bounce back to the $4.50 range.

I hate to say it, but most newbies aren’t willing to accept a loss, and they’d rather leverage their trades in hopes to get back to even.

As the stock continued to drop further, I was closely watching to see if DFLI could bounce off of its morning breakout as I was noticing there was a lot of support by focusing on Level 2…

I was able to get in at $3.40 and exited my trade at $3.57, a $510 profit. (Risked $10,200)

When it comes to these types of plays, I’m just looking to take a quick profit and never buy and hold…

Just because you miss Breaking News Alert doesn’t mean the trade is done…

More Breaking News

With any big spiker, I always look for a dip-buying opportunity.

Final Thoughts

It’s important to understand how penny stocks work…

HODLING will not bring you success, or give you a return of 630% in three years.

Many traders still don’t believe they can achieve those types of returns with a small trading account…

But it is entirely possible, even with a small account.

That’s why it’s important for you to study my process inside and out…

And most importantly, stay away from HODLING.

I’ll see you in chat.

-Tim

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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 (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”