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Penny Stock Basics

Learn These 7 Penny Stock Nuances

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Written by Timothy Sykes
Updated 12/28/2022 8 min read

What if I told you I knew how 99.99% of all penny stocks end?

Not only that, I could tell you PRECISELY how to trade them.

I don’t have a crystal ball…

However, I do have something even better – experience.

Through more than two decades of trading, I realized most parabolic penny stock moves follow this 7-Step Framework.

But there’s more to this blueprint than meets the eye.

Don’t get me wrong, THIS PATTERN is where every trader needs to start.

Yet, you’ll need more to become a seriously profitable trader.

I’ve said trading is part art and part science, but that’s not entirely accurate.

Trading is part science, part nuance.

For example, promoters tag me on social media more frequently when pumped stock nears its top.

Like a poker player who’s seen millions of hands, the little details I accumulated over the years improve my trading.

Last week, I used a little known nuance to dip buy Cloudweb Inc. (OTC: CLOW) for a nice $834 profit… (My starting stakes were $6,740)

Did I mention the stock was in freefall?

My students wondered how I pulled this off since it didn’t fall into the traditional morning panic dip buy.

I gave them the answer along with six other tidbits I’m going to share right now.

These are some of the BEST observations I made over the years that helped me achieve a +75% win rate with millions in profits.

1. Pumps Can Go Higher Than You Think

tim sykes in sedona arizona with laptop of stock chart
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Many of my top students who love to short got smoked in Intelligent Living Application Group Inc. (NASDAQ: ILAG).

They used their patterns, but failed to remember why I stopped shorting stocks.

With shorting now easier than ever, the trades get crowded.

That’s led to huge squeezes that can send shares soaring.

Take AMTD Digital Inc. (NYSE: HKD).

This stock went from below $20 to nearly $3,000 in days.

Short sellers can lose everything on stocks like these.

Yes, they all fail eventually.

But don’t forget that there’s a reason setups include stop losses.

2. Morning Panics Dip Buys Eventually Fail

Every stock that fits my 7-Step Penny Stock Framework only ends up one way…dead.

When I dip bought CLOW, I knew that it would eventually fail.

Any stock that promoters pump up must crack.

That’s why I’m so adamant about losing small and fast.

Digging into a one-minute chart of CLOW, I can identify three spots that could have worked as dip buys.

The first bounce wasn’t bad but it wasn’t huge either.

The second spot was the best area, while the third hardly moved.

The stock eventually broke through the dip in two out of the three spots.

Given enough time, the stock will break the third spot.

Stock pumps always end the same way.

3. Dip Buy in the Afternoon on the Second Dip

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Typically, I don’t buy afternoon panics. They don’t offer the same odds as in the morning.

However, CLOW offers an example of a quirk in this framework.

When a stock panics in the afternoon, it typically tries to make a bottom and fails.

If it goes for a second bottom shortly thereafter, that’s a better spot to panic dip buy.

Keep in mind, the later in the day, the less likely this setup will work.

4. Breakouts from Consolidation Struggle on the Second Day

Mult-day runners start one of two ways: day one surge that keeps going (like HKD) or a surge that consolidates before breaking out.

In the second instance, when the stock finally breaks out of the trading range, it does it in fits.

The first day out is usually followed by a second day that struggles to maintain the momentum.

Gaotu Techedu Inc. (NYSE: GOTU) demonstrates this on the daily chart near the end of November.

Shares surged from below $1.00 to $1.20 before trading sideways for a week.

The day after they broke out, the stock took a breather.

You can see the same pattern on the next breakout and pullback over the next two days.

The longer a stock consolidates, the more likely it is to backtest before moving higher.

5. China’s Market is Full of Scams

artificial intelligence stocks under 5 to watch in 2021
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Speaking of GOTU, Chinese stock markets are full of scams.

The stocks listed on American exchanges should be treated with extreme caution.

China’s regulators are far more heavy-handed in their involvement and the reporting isn’t nearly as transparent.

I trade every penny stock like I expect it to fail. That goes double with these companies/

6. When a Dip Buy Closes Near the Low, It Often Has One More Panic Before a Bounce

I want to bring up a daily chart of Global Tech Industries Group Inc. (OTC: GTII).

I put two arrows on the chart.

The left one points to a red candlestick that didn’t close near the lows.

The right one points to a red candlestick that did close near the lows.

When panic selling hits a penny stock, shares will often need a second day of selling if the first one closes near the low.

That’s why the first candlestick didn’t continue down the following day but the second candlestick did.

7. Trading Less Can Make You Better

top artificial intelligence stocks for 2021
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Traveling the world for pleasure and charity work means I have less time to trade.

So, when I do trade, I make it count.

Coincidentally, the less time I spend trading, the better I perform.

In front of my screens at home in Miami, I do worse than when I’m on the road.

It’s a simple matter of overtrading.

It’s a part of me and something I will always fight.

So, I designed a lifestyle to work around it.

We all have weaknesses. And you can’t just will them out of existence.

But you CAN structure your trading to limit their influence.

And Remember…

Your output is a function of your input.

Study hard and you will go far.


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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

* 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”