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Trading Recap

Penny Stock Skills Work Everywhere

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Written by Timothy Sykes
Updated 9/16/2022 6 min read

Wall Street likes to talk a lot of smack about penny stock traders.

They’ll tell you that it’s all rigged or you can’t generate real wealth trading stocks under $1.

Yet, I, and more than 20 of my students, have done just that.

These charlatans want you to hire them, charge an exorbitant percentage of your assets, and deliver subpar performance.

I trade penny stocks, and teach others how to, because I found it MORE CONSISTENT than messing with large-cap names.

But that doesn’t mean what I teach can’t be applied elsewhere!

The analytical techniques I teach work on any asset, including the major indexes.

Case and point…

Heck, I even pinpointed the support level using the same methods I teach my students.

And for those of you who doubt me, I’ll show the two I used to nail this call.

10,000-Foot View

Everything starts with a 10,000-foot view, whether I’m looking at a penny stock or the broader market.

When I identify potential dip buy trades on penny stocks, I’d much rather do it on a multi-day OTC runner than a one-and-done play.

Same thing goes with the broader market.

When stocks are in a downtrend, the reversals can be violent.

I mentioned to my students to be on guard in September and October.

The biggest market crashes tend to happen during these two months.

So when markets bounce for several days in a row without much of a pullback, chances increase that one is just around the corner.

The daily chart of the S&P 500 ETF TRUST (NYSE: SPY) shows four bullish days that sent the market up almost 6%.

Essentially, the market overextended itself.

Penny stocks do this all the time when they go Supernova. And we all know how that ends…

Practical Support & Resistance

I’m going to let you in on a little secret.

You don’t need any proprietary technique to identify support and resistance levels.

All you need is common sense.

Take a look at the intraday chart of the SPY below.

I drew white boxes around two highs the market made and a third box on a gap in price.

All of these came in near the big $400 price.

So, it makes all the sense in the world that this would act as support in and around that area.

If you want to make it easy on yourself, just draw a box around the high and the low of those spots and extend it right.

If you zoom into that area, you’ll see the SPY find support right in that zone.

Is this the ultimate low for the day?

Not at all.

But you don’t need that to create trades.

If this were a penny stock, I would aim for a 5%-10% gain with proper risk management.

And if this was a multi-day runner, I could let a portion run and see how far it might go.

In fact, I find penny stocks even more likely to develop strong reactions off support and resistance areas.

Take Ilustro Pictures International Inc. (OTC: ILUS), for example.

When the stock fell on the third day after a huge gain, shares found support just above the prior day’s low.

Sometimes it hits the support levels dead on. Sometimes it comes up short. Sometimes it spikes through.

As a trader, if I know where to look for support, then I can place buy orders. They won’t always get filled. But the ones that do have a high likelihood of turning around.

Plus, with small cap stocks and OTCs, the price action is much cleaner.

Let’s dig in even deeper to ILUS and go to the one-minute chart.

Imagine that the prior day’s low was at $0.098.

The stock comes into that spot and then reverses on heavy volume as shown above.

That combines support and resistance with price action to give me an incredibly powerful setup.

I can buy the stock against the lows and look for a rebound.

If shares don’t move higher within a few minutes, I can cut the trade and move on.

Rinse and repeat this analysis, and you’ve got a full-fledged trading plan.

Now, this is just part of a broader set of skills and setups anyone can learn.

Sign up for my Millionaire Challenge to get the full schematic that takes your trading to a whole new level.

 

—Tim


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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

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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”