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Can You Dodge These 3 Penny Stock Landmines?

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Written by Timothy Sykes
Updated 5/18/2023 5 min read

Penny stocks.

It’s all fun and games until your account is blown out.

Regarding investment vehicles, they have to rank among the worst.

Don’t get me wrong… I’ve made several million dollars throughout my career from penny stocks.

But there are some things you just have to know before trading them.

Mess this up, and you’re likely to suffer some devasting losses.

Here are three warning signs you must know before trading penny stocks.


#1 The Majority of Penny Stocks Are Garbage.

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If you invested $1,000 in Amazon’s IPO, it would be worth $1.5 million today.

That’s the allure of penny stocks.

Imagine buying one stock and being set up for the rest of your life.

If it sounds too good to be true…then it probably is.

The majority of penny stocks are just crappy companies.

They will pay promoters to bring awareness to their stock.

If the stock pumps and trades higher, they will use the opportunity to sell stock and raise capital.

And they’ll do anything within their power to make this happen. They’ll try to pump via social media and various email campaigns, issue press releases, and pay chat rooms to get their name out there.

It can be a dirty game…what can I say.

That’s why I always tell my students to expect the absolute worst from these companies.


#2 Fundamentals Rarely Matter

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Most of the penny stock companies trading are unprofitable. They have almost no fundamentals whatsoever.

In addition, there aren’t Wall Streets analysts that research these types of companies.

The plus side is that these stocks can make massive runs off catalysts.

Not only that, but they are often moving based on fear and greed.

That’s why you shouldn’t really bother looking into the company’s financials. Instead, focus on the sector the stock is in, and if that’s a hot theme in the current market.

Pay attention to the press releases and identify if similar press releases are moving stocks positively.

#3 Buyer Beware

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For the most part, holding onto penny stocks for more than a few hours can be risky.


You never know when the company will raise capital and dilute shareholders.

Usually, a stock will tank after it raises capital.

In addition, the stock could be halted by the regulators if something suspicious is going on.

That’s why you should be thinking in terms of trading and not investing. 

Why I Love Penny Stocks

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I know I spent a good portion of this blog post bashing penny stocks.

But that’s what they are…crappy stocks.

However, it’s important to note that it doesn’t deter me from trading them.

I love the fact that no analysts are researching these stocks.


Because I would rather trade against unsophisticated investors.

And let me tell you something, most people who trade penny stocks aren’t world-class traders.

If there’s money on the line, would you rather compete with superior or inferior competition?

I don’t know about you…but I would rather trade against amateurs.

And since fundamentals rarely play a role…I find it easier to take advantage of other traders’ emotions.

For example, some of my current favorite strategies, like the panic dip buy, aim to take advantage of FOMO, fear, and greed.

Final Note

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There’s nothing glamorous about penny stocks.

But from my experience, they offer some of the best opportunities for traders to profit.

I’ve discovered that human emotions don’t change much over time….

And that the patterns and opportunities in penny stocks can be predictable.

Moreover, I would focus on penny stocks if I was starting with a small account.

It’s what I did when I just had five figures to my name…and what I’m doing now with millions in the bank.

If you’d like to learn more about my penny stock trading framework and I’ve helped dozens of my students on their millionaire journey, then CHECK THIS VIDEO OUT.  

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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”