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Trading Lessons

7 Cardinal Rules To Mastering Penny Stock Trading

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Written by Timothy Sykes
Updated 7/31/2023 7 min read

Turning a small amount of money into millions from trading penny stocks isn’t impossible.

In fact, I’ve done it, and so have dozens of my students.

But that doesn’t mean it’s easy.

Most things that are worthwhile in life aren’t.

If you want to know what it takes to make it in this game…

I’ve broken it down into seven rules.

 

Number #1: Don’t Chase…Plan Ahead

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The reason why I Iike penny stocks is because they’re cheap, follow predictable patterns, and are volatile.

For most investors, volatility is a scary word.

But if you’re an active trader you must learn to thrive off volatility.

The problem is, most newbie traders get excited when they see a stock up 20%,40%, or even 100% up in a day…they FOMO into the trade at the worst possible time and get wrecked.

Do I like fast movers?

You bet I do.

But the price has to be right.

That’s why I take a sniper approach when I’m trading.

I try to only take a shot when I have a clear aim.

For me, that usually waits for a panic dip buying opportunity.

You see, two traders can be in the same stock, but they can be in totally different trades dependent on the price they entered.

That’s why having a plan is so important.

Number #2: Knowledge Is Your Weapon

I’ve been in this game for +20 years…

I can trade from anywhere in the world and do so…

But you know what?

I still journal all my trades and review them.

Why?

Because the day you stop learning and trying to adapt to the market is when you regress.

Most newbies don’t realize how much time and dedication it takes to make it as a trader.

I have hundreds and hundreds of hours of teaching lessons recorded for my students.

If you ever decide to work with me, your number one job will be to STUDY…STUDY…STUDY.

There’s no shortcut. You either are willing to do the work, or you’re not.

Ask any of my +30 students who have become millionaires if it was worth it to them.

Number #3: Be A Sniper, Not A Spray Shooter

frequently asked questions about penny stocks to watch
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I’m not going to lie.

Put me in front of the computer all day, and I’ll probably overtrade.

Trading can be very addictive.

However, I’ve learned over the years how to resist the temptation of over-trading.

And that’s by either training my students or stepping away from the screen.

Having less time dedicated to trading allows me to be more selective.

I’m carefully looking at each trade, assessing the risk, catalyst, and targets.

Once I feel the risk to reward is shifted in my favor, I’ll then pull the trigger.

Sometimes I’ll watch a stock for several days before deciding to trade it.

That’s what being a sniper is all about…waiting for the right moment.

Number #4: Learning vs. Alert Following

bonus tip 2 to the best trading risk management
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Many of my very best students trade nothing like me.

Is that a slap in the face…or does it mean my strategies suck?

Nope.

You see, my goal is for all my students to be self-sufficient.

Sure, alerts can be useful when you’re just learning the ropes.

But just like riding a bicycle…you eventually want to take the training wheels off.

There are tons of shady characters on social media and chat rooms pumping B.S. stocks and trying to take advantage of newbies.

You’ll always be slow and late when following alerts.

That’s why I tell my students to think about their actions, be curious, and review what is and isn’t working.

This process allows you to learn from both successes and failures, and it’s a practice I strongly recommend.

Number #5: Plan Your Own Trades

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Never piggyback on someone else’s trades.

As I mentioned earlier, you can be in the same symbol as someone else, but they could be in a different trade.

Why?

Because they could have different targets, their account size may differ, risk tolerance not be the same…so on and so forth.

You should analyze, plan, and execute your trades based on the setups you like and risk level.

Is it harder than what the herd does?

Yes…but remember…most traders lose money…

Why would you want to be like most traders?

Number #6: Trade Like A Coward

trade like a coward - sykes
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I’ve lost A TON of money on single trades throughout my career.

It usually happens when I get stubborn, force trades, or get overly cocky.

You either get wiped or develop a new respect for risk management.

And that’s what I did…I made risk management my focus.

That’s why I always try to keep losses small and get out quickly if I’m wrong.

I trade like a coward…not because I’m scared to pull the trigger…but more so I know what the market can do to me if I’m not on my A game.

You see, when you’re trading penny stocks you need to be ultra focused.

These aren’t blue chip companies…

When they go down…they go down hard.

Number #7: Live To Fight Another Day

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Forget about getting rich quick.

Your goal in the early stages of your journey is to survive.

There’s tons of holes in your game that need to be plugged.

It won’t happen overnight.

It might take 1,2, or even 3 years…

It might never happen.

But what you want to do is constantly be striving to gain more knowledge and learn from your mistakes.

That’s why you need to focus a lot on risk.

And never put your guard down.

The market will humble you once you get too cocky.

Wait for the right opportunity and then strike.

Stay patient, keep learning, and most importantly, trade smart.

Final Word

There are two ways I can help right away.

  1. Start receiving ideas from my team and me. They are 100% free of charge
  2. Talk to a team member and see if you fit my coaching program. You can book a call here. 

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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”