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Can You Spot “Legitimizer” Catalysts Before Anyone Else?

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Written by Timothy Sykes
Updated 3/20/2023 6 min read

AI headlines dominated the stock market over the first two months…

But over the last several weeks, the focus has shifted from AI to the banking crisis.

Market trends are constantly evolving, and it’s crucial to stay ahead as a trader.

While many fixate on the latest buzz, the most lucrative opportunities can sometimes stem from stock-specific catalysts.

In fact, I’ve found that “legitimizer-type news” can yield impressive gains, even amid broader market turbulence.

This type of catalyst trade is a personal favorite and a strategy I share with my students. 

Want to learn the mechanics and discover how I recently profited?

But first, allow me to explain why I focus so much on catalysts.


Why Catalysts?

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As traders, there’s one thing we desire more than anything else.

It’s the complete opposite of what investors want.

You see, investors want to see the stock market move up gradually.

However, as traders, we don’t care if stocks go up or down.

The one thing we care about is volatility. Meanwhile, investors hate uncertainty.

We need stocks to move more than anything else. And for that to happen, we need catalysts.

Now, there are big catalysts that drive the overall markets, like Fed policies, economic data, and geopolitical news.

Right now, we’re witnessing it with the banking crises.

And while trying to capitalize on a big market theme can be profitable.

It’s not always simple.

That’s why I like to focus more of my attention on stock-specific catalysts.

Why I Prefer Penny Stocks

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One of the main reasons I like penny stocks is that they tend to react well to catalysts.

For example, let’s say Apple announced they were getting into the automotive business.

That’s big news, right?


But Apple has a multi-trillion dollar market cap. Moreover, it has dozens of analysts that cover the stock.

The news could push the stock up slightly higher, but it might not be as significant as you’d think.

On the other hand, it’s a waste of time for most analysts to cover penny stocks. And because of that, penny stocks tend to have huge reactions to catalysts.

Legitimizer-Type News

Tim Sykes top penny stocks list trading education September 13, 2021
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Most penny stocks are crappy companies. I tell my students never to invest in them. 

Many of them move because they pay promoters to pump their company up.

And since many of these companies don’t have any actual profits…the best way to get traders excited is by attaching themselves to legitimate companies or a thriving industry.

I’ll show you an example from a trade I had on Monday, so this can make sense.

Basically, these companies want to piggyback off a legitimate company—and show they, too, are legitimate.

Monday’s Trade On Oatly (OTLY)

Oatly (OTLY) is a company that makes oat milk. The company went public via a SPAC merger in 2021, hitting a high of $29 a share in June 2021.

Source: StocksToTrade

However, like many unprofitable companies in 2022, the stock got hammered.

The stock is down over 55% over the last twelve months. And it has a rather high-short interest.

Now, when a company is down in the dumps, it needs a strong catalyst to shift people’s perspectives.

And that’s exactly what it got on Monday.

My news scanner picked up this headline:

Oatly inks deal to provide oat milk for McDonald’s coffee drinks in Austria

McDonald’s is the biggest restaurant chain in the world. So if you’re a beverage company and you ink a deal with McDonald’s, that’s big news…

And if a big company like McDonald’s wants to do business with you, then it legitimizes you.

I read the headline and thought OTLY would be good for a pop on that.

Source: StocksToTrade

I got in at around $2.39 and quickly got out at $2.475.

It was a beautiful little morning spiker that provided a solid risk vs. reward setup.

I put $11,950 into this trade to buy 5,000 shares…bringing me back $425 in profits.

While most of Wall Street was fixated on the banks…I saw an easy opportunity to capitalize on.

Now, if the deal was North America and Austria…I think the stock could have run significantly higher…

But companies like McDonald’s like to test stuff out in smaller markets before going wide.

Bottom Line

tim sykes looking at laptop
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Most penny stock companies are unprofitable. They rely on press releases to bring awareness to them because they don’t have analysts covering the company.

One of the easiest ways for them to get investors and traders excited is to attach themselves to legitimate entities.

If you have a reliable news service that catches these headlines quickly, they could make for some fast trades.

If you’d like to learn more about my strategies and how I’ve helped over 30 of my students become millionaire traders, then click here.

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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”