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Penny Stocks-Timothy Sykes Millionaire Challenge

Millionaire Mentor Update: Rome, Japan, and Student Questions

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Written by Timothy Sykes
Updated 1/25/2023 12 min read

As you can see in the picture below, I’m living the dream. It’s possible for me because I learned to trade penny stocks. I want you to live your dream life, so apply for the Trading Challenge today.

In my last update, I was in London for interviews. Then I made my way across Europe for several days…

I just arrived in Japan. My charity Karamagawa is working on a bunch of partnerships.

I’ll have more information on our upcoming partnerships for you soon. In the meantime, head over to the Karmagawa website. Which charities do we donate to? Read more about them here.

By the way, if you order Karmagawa swag, take a picture of you wearing it and post it. Tag me and I’ll re-post. Let’s spread the word.

Our mission is to donate to charities and give them exposure. The charity world is highly regulated. If we were a traditional nonprofit, the scope of our projects and partnerships would be limited.

Karmagawa helps us grow our relationships with more brands and charities. We think it brings more value to the world in the long run. You’ll see what I mean when we release the Save the Reef documentary next month. Stay tuned.

Anyway, that’s why I’m here in Japan. Not to mention the fact that I love sushi.

Traveling Trader Alert

As always I’ve been trading…

But rather than give you a trade of the week this time around, I’ll focus on student questions. I’m more excited, more thrilled, and more focused on showing you the process. Often that means showing something other than the biggest winner.

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No FOMO necessary … one student question deals with multiple trades of a single stock. I’ll use that example to show what I was thinking and how it played out.

With that in mind, let’s dive right into…

Questions From Students

“Tim, when $KBLB started to tank, it was fascinating to watch some of your best students short while you were dip buying. Should we be trying to play both sides of a run — both long and short?”

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I’ve said this again and again: I really don’t think newbies should be shorting. If you’re asking this question, you shouldn’t be short selling.

Here are some examples:

I’ve mentioned Kraig Biocraft Labs Inc (OTCQB: KBLB) several times recently. It was one of the best stocks for me in the entire market for nearly a month. Even in the face of market uncertainty fueled by trade tension with China, KBLB made a roughly 600% run.

KBLB was a low-priced stock. A lot of shorts were too early. Frankly, I think that’s what spiked it all the way to 50 cents per share. We’ve also seen short squeezes on Biocept Inc (NASDAQ: BIOC) and Outlook Therapies Inc. (NASDAQ: OTLK) — especially OTLK.

Check out the BIOC chart:

BIOC chart: newbie shorts got squeezed.

I’ll include the OTLK chart as part of the last question below.

Both stocks spiked, then other chat rooms encouraged shorting them. The result was a lot of newbie shorts got in too early. When they got squeezed, they covered for a loss. As they covered, the price of the stock kept going up. Great for longs who recognized it. Sad for newbie shorts.

Please repeat after me: It’s dangerous for newbies to short. Did you say it? Do yourself a favor and say it. That’s not to say you shouldn’t learn about shorting. I’ll explain why later in this post.

Back to the question…

Lots of shorts — and I see this in other chat rooms all the time — like to list the reasons why it’s a good idea to short a stock…

“Look, this company has warrants, it’s gonna crash … it’s gonna crash.”  Or whatever reason their so-called guru gave them for shorting every stock that has a big spike.

There are a lot of newbie shorts these days who don’t understand the risks of short selling. They enter too quickly. The problem: If you wait until what’s usually the right time, there might not be any shares available to short. So you actually have to enter early.

But we’re seeing a lot of squeezes, so it’s very dangerous for newbies. You can have these big-time short sellers who can ride out the squeezes because they have a big account.

FOR EXAMPLE: If a newbie gets in at $1 per share and the stock squeezes to $4 a share — they’re in trouble. Too often it ends in introspective tweets about lessons learned the hard way.

I prefer dip buys and strong first green days. Both of these strategies can help a newbie or someone with a small account. Over time it’s possible to grow a small accountas long as you study, learn the rules, and follow them. Even then it takes time to get consistent.

Here’s another question, also about KBLB…

“When you alerted your exit from $KBLB on May 16, you mentioned overtrading. At what point do you tell yourself it’s time to step away?”

I think I did three KBLB trades that day. Sometimes you gotta just walk away from your laptop or smartphone. You have to recognize you’re overdoing it. My exit comment for that trade was exactly that — I acknowledged it was time to stop.

The stock had a big run up from mid-April. Then it lost 20% over two days, but it wasn’t until May 16 that it crashed big. I expected a bounce off the crash.

Here’s a KBLB 10 day chart:

KBLB 10-day chart: May 14 – 24

We did get a bounce on May 20 when it gapped up. By 10:05 a.m. it was roughly 32% above the previous day’s close. I was tentative by then. I anticipated this bounce and wanted it too badly.

When you anticipate and want something bad enough, you usually screw up. I still made money. On May 16 — my overtrading day — I made $2,556* on the stock.

But I was too soon. They were dip buys — I took the singles because the big bounce never came. Then, when it was the right time for the 32% bounce on May 20. I was all in my head because I’d overtraded it before. I made roughly a penny a share on a 9 cent per share move.

It’s a good lesson.  

Admittedly, I was obsessed with KBLB. Some students were even messaging me asking why I was so obsessed with this stock. It’s because if you look at the 30-day chart the stock went from 8 cents to 50 cents then dropped roughly 60% from its highs.

I’ve seen this kind of run up and crash so many times before. It can be a good time to dip buy, and I anticipated a morning panic to buy into. It did a decent job but was also disappointing. The key is that I played it safe.

I’m OK with being wrong. I’m not just holding and hoping, saying, “This is definitely the bottom.” I see a lot of people trying to dip buy … It’s like they want to stick a flag in the chart and say, “This is it. This is the bottom.”

Still, I did well with it because I always use a trading plan. Between May 14 and 22 I traded this stock 10 times — eight wins and two losses. My total gain for those 10 trades was $4,786.**

There are a few lessons here:

  • Small wins add up. It wasn’t necessary for me to tie up my trading capital for long periods of time. My longest trade was an overnight hold. Most were a matter of minutes. The funny thing is I made roughly a penny per share on some of these trades. On one of the May 16 trades, I managed to squeak out 2 pennies per share. Crazy, right?
  • Perfect example of Rule #1: cut your losses quickly. When those two losing trades went against me I got out. It wasn’t important for me to be right. Protect, protect, protect. Learn to cut losses quickly.

So even though the pattern didn’t play out the way I anticipated, my account got bigger.**

On to our final student question for this update…

“Tim, why are choppy stocks like $OTLK so difficult to play?”

Because they’re choppy. For me, I really like to control my losses above all else.

So even if I’m right about a choppy stock, most likely I’ll mentally stop out. Because that’s how the stock trades. I don’t wanna risk a big loss, so I don’t do well.

For those of us who really care about cutting losses quickly, it’s just impossible with a choppy stock. When a stock has too wide a range, too much volume, too much volatility — there’s no safe way to play it. I’m just not good at it. So I’ve learned to step aside.

Again, $OTLK was probably the best example of a short squeeze. It’s a terrible company, warrants galore, with a terrible long-term chart. It spiked up for several days in a row because there were so many shorts.

Here’s the OTLK chart:

OTLK chart: newbie shorts got annihilated

Sometimes the worst, most fundamentally flawed company can become the best performing stock if there are too many shorts.

I promised to explain why you need to learn about shorting even if you’re a newbie. Pay attention!

Even though I don’t think newbies should short, it’s useful to LEARN about shorting. I have over 400 video lessons in my library on short selling. My ShortStocking DVD has over five hours of content on short selling.

I tell newbies short selling is dangerous and they shouldn’t do it. Then they’re like, “Well, if I’m not gonna short, I’ll just skip these…”

NO! It’s important to understand how shorts think. It’s important to see how a short squeeze can be created. Even if you’re not shorting. You have to learn all the angles of this penny stock game.

It’s not rocket science, but you have to learn all the angles.

What do longs like? What do shorts like? That way, you can better understand the game.

It’s not just about picks. It’s mindset. It’s motivation. It’s dedication. You have to learn the whole process. Rules, pattern recognition, risk management … Why news catalysts can move stocks … How earnings can affect a stock’s price for several days or not at all. You have to learn everything.

Millionaire Mentor Market Wrap

I hope you take advantage of spare time to continue studying. (You studied over the long weekend, right? If not, get on it.)

Remember: Learn about short selling … But consider holding off on shorting until you’re experienced and trading with a big enough account.

If you’re ready to kick things up to the next level, apply for my Trading Challenge. Be prepared for someone on my team to contact you. Be ready to tell them how hard you’ll work — because not everyone is accepted. See you in the chat room?

Are you a trader? How often have you overtraded? Share your experience in the comments below. Newbie? Comment below with “I won’t short sell until I’m ready.”

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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”