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Penny Stock Basics

Hot IPO or Hype? -Penny Stock Trader

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Written by Timothy Sykes
Updated 4/18/2022 10 min read

Patterns play out in the stock market. All. The. Time. It’s something you have to know when considering whether the next big stock debut is a hot IPO or hype…

I know this very well … and it’s a huge part of my approach to trading and teaching.

But plenty of traders quickly forget that patterns don’t just play out on charts — they play out in sectors and specific types of stocks or investments, too.

A troubling pattern I’ve seen recently? Everyone rushing in to buy the hot tech IPO, only to get burned.

It keeps happening. Over and over. How many traders have to blow up before they see it?

Too little research, too much willingness to blindly follow trends … too much laziness. These are the problems … but there IS a solution. Let’s talk.

Bought Uber? Uh Oh.

You watched the news, you read the paper, and the message was clear: Invest in Uber’s IPO or you’ll miss out. 

You set your alarm early on the big day so that you could rush in to buy shares before anyone else.

How much did you pay? Maybe you got in right away for about $45 per share.

Or maybe you got a late start and still bought in at $47, figuring it would only keep going up. How could it not, after all the awesome coverage it got?

… but then, to your horror, the price started to drop. And continued to drop.

But did you sell? Heck no. This was the next big thing, and it just had to rally, right?

But it didn’t. Shares fell to $30. You, my friend, were left holding the bag.

… and this is what happened with one of the hottest companies in the world.

The situation I just outlined is fictional, but it probably hits close to home for plenty of traders who rushed in.

Remember: fools rush in.

Hot IPO Burn: The Struggle Is Real

It’d be one thing if Uber’s hot IPO price drop was a one-off. But it wasn’t.

Traders with half a brain could have seen this coming.

Even a decade into the current bull market, this is a pattern that’s played out a ton of times in recent memory.

For example…

It might play out a little differently every time, but it all adds up to the same story.

Ultimately the moral of this story is this: a lot of what people think is hot … is not.

Buy and hold is dead for ‘hot’ tech stocks. 

Don’t Be a Follower

As a trader, how can you think differently about approaching the market? Here are a few ways…

Seek Out Knowledge

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Sign up to jump start your trading education!

Knowledge is power when it comes to trading. When you keep learning, you get much better at thinking for yourself instead of just following the masses. Here are some ways to improve your trading know-how…

Trading Challenge

I established my Trading Challenge so that you can develop a foundation of knowledge that allows you to think for yourself as a trader.

At this point, there are thousands of resources available to students, ranging from an archive of webinars to hundreds of hours of video lessons. The Challenge offers you the perfect entry to trading in a supportive atmosphere with a group of fellow motivated traders.

FREE Penny Stock E-Guide

With so much free info out there, it’s really inexcusable that traders don’t take the time to actually learn the basics. My FREE Penny Stock E-Guide is a must-read if you want to trade low-priced stocks … Even if you’ve been trading for years, it never hurts to review the basics.

Explore Alternative Strategies

Take your education to the next step by learning how to approach the market differently. These books can help.

“An American Hedge Fund”

In my bestselling book “An American Hedge Fund,” I explain my methods for approaching the market and sniffing out opportunities that other traders didn’t see.

It’s not rocket science. It’s a matter of learning all you can and thinking for yourself. This book will help you get into the mindset.

“The Complete Penny Stock Course”

If you’re interested in trading low-priced stocks, “The Complete Penny Stock Course” should have a permanent spot on your bookshelf.

I wrote the foreword to this incredible book by my colleague Jamil Ben Alluch … it’s one of the best pennystocking guides on the market.

Don’t Believe the Hype

The best way to blow up your account? Don’t use your brain — just buy up shares of the hot companies you hear about in the media.

You’ll get burned if you just listen to the hype.

The media doesn’t care about your trading. The media just talks about what’s hot – not what’s effective. 

Twitter user @beaugeto gets it:

This is a big reason why I’m not a slave to the media. I don’t waste my time on the BS stocks that they talk about.

They gossip incessantly. This doesn’t help you as a trader or investor. So ask yourself…

… do you want to be entertained by gossip?

… do you want to play guessing games?

… do you want to pretend that you feel safe with all this BS?

Or do you want to take on strategies that aren’t covered by mainstream media?

Think for Yourself

One of the biggest keys to my success? Figuring out how to think for myself.

In Chapter 6 of “An American Hedge Fund,” I explain how I cut through the BS and made one of my biggest profits ever.

Check it out – this chapter is free to access online. I talk about how I made over $100K in a day as a college student on a first green day pattern. By avoiding the hype that drew in lazy traders who didn’t do their research, I made one of my biggest-ever profits on a single trade.

How about a few more examples of recent successful trades?

TTCM was a first green day stock with a big breakout … I bought on strong volume, sold on Monday, and made 40% overnight. I could have made more, but I wanted to stay safe.

I wasn’t the only one. Profit.ly user PJustus took profits too:

“I took positions in both TTCM and DCGD. Just as you said DCGD did not continue to break into the .60s and .70s and I lost some of the profits I could have realized (roughly $800 dollars on my 5k account) I still profited some but a good lesson.”

No, you can’t make 40% every day, and it definitely doesn’t happen to me every day. But when that setup does present itself, I’m ready to take it. I sold too quick, but I still made a good profit.**

BILZF is another stock I held overnight on its first big green day with volume. I was in at the $1.30s and out around $1.90 … It went even higher, but I was still happy because I exited with a profit!

I wasn’t the only one to take advantage. Profit.ly user ParrotHead11 got in on it too:

“Bought this at confrence at $1.39 sold 4/5 of my position at $1.90 and the last 1/5f at $3 something. Following your advice! Thanks man.”

If you want to be a successful trader … don’t just follow what the press says. Sure, you can listen. But don’t act based on just that. Do your own research.

Focus on things that the media doesn’t cover. Look for these small niche opportunities where you can make not millions but a few thousand as you go. Focus on these patterns year in, year out, and it can build over time.

Focus on safe profits like student @jaretroberto!

To really make the most of patterns, you’ve got to learn to think for yourself. This means breaking away from mainstream media, or at least taking what they say with a HUGE grain of salt.

What do you think about these IPOs?  Leave your comment below. 

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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”