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How Information Inefficiencies Cause Penny Stock Supernovas

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Written by Timothy Sykes
Updated 1/17/2023 13 min read

I want to show you the single BEST reason you should be trading penny stock supernovas. 

No, it’s not just that penny stocks are cheap. Or that many of my top students have exponentially grown their accounts trading penny stocks.

It’s not even that they’re more volatile and can spike 100s of percent in a day.

I mean … after that list alone, what’s not to love about penny stocks? But here’s what I think is the best reason…

The one everyone should care about…

The number-one reason I love penny stocks: information inefficiencies. 

You’re probably thinking … “What does that mean … Information what?”

Don’t worry. ‘Information inefficiencies’ is just fancy talk for…

How I Consistently Capitalize on Penny Stocks

Most people hate penny stocks. They don’t understand my rules and usually lose money until they give up.

They treat penny stocks like lottery tickets — believing they found the next Amazon (NASDAQ: AMZN).

NEWS FLASH 

Penny stocks are mostly garbage. You didn’t think I was dumb enough to actually believe in their scammy stories?

They’re TRADING vehicles — not investments. My students and I take advantage of the volatility. We trade them when they’re hot and ignore them once they complete the Penny Stock Framework.

MUST WATCH: “The Volatility Survival Guide”

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This market is insane. There are so many plays, I’m having a difficult time keeping track of them all. But this market won’t last forever, which is why I encourage you to watch “The Volatility Survival Guide.” It’s brand new, ZERO COST, and created specifically for this crazy volatile market.

Access “The Volatility Survival Guide” Here

That brings me back to…

Why Penny Stocks?

Because I’m actually smarter than the competition. Listen…

I’m not a smart guy. And not all my top students were A+ students in school, but…

We’re consistent in trading penny stocks because we’re playing against idiots.

Idiots believe the press releases. They load up on the sketchy companies and get burned. While I play repeatable, predictable patterns. 

Let’s do some basic math (hang on … trust me)…

Less competition = More opportunities for me

Dumber competition = Easier opportunities for me

I’m not a mathematician … but it’s clear to me that penny stocks are the best niche in the stock market. They offer more easy opportunities than any other niche. Penny stock supernovas create incredible opportunities.

Back to…

Information Inefficiencies

For decades, scholars have debated whether the stock market is efficient.

In my opinion, it’s a bunch of bogus … But an efficient market would mean that at any given time, the price of a company’s stock accurately reflects the actual company’s value. In other words…

All news, world events, developments, and business operations are baked into the price. If this were true, there’d be no way to take advantage of stock movements. Fortunately, penny stocks are FAR from efficient.

This is where it gets good…

Real companies (large-caps, blue-chips, etc.) are close to efficient because so many highly educated people watch them ALL DAY. They have advanced math models and complex computer algorithms to take advantage of any tiny inefficiencies. But…

Who’s looking at penny stocks? Dumb people … and me and my top students.

Without the smart, well-funded Wall Street crowd, news spreads slow. What would take seconds on Wall Street sometimes takes days in penny stocks.

So if you prepare, understand the patterns, and use this revolutionary tool

You can learn to take advantage of information inefficiencies too.

Here’s an example…

Creative Realities, Inc. (NASDAQ: CREX) Penny Stock Supernova

On April 28, 2020, Creative Realities changed its website to pivot to a more coronavirus-pandemic marketplace. Check it out here.

For large companies, a pivot like this is huge news to shareholders. But CREX redesigned its entire website without a press release … until the last two hours of the market day.

I want you to focus on the morning action. Pretend like you’re seeing this chart for the first time.

CREX stock chart
CREX chart: 1-day, 1-minute candle, morning session — courtesy of StocksToTrade.com

Somehow, traders discovered the website redesign before the press release. This discovery excited many traders. It meant CREX had an upcoming catalyst.

Traders started to buy the rumor that there would be a press release later that day. Unfortunately, if you weren’t using this revolutionary tool’s social scanners … you probably didn’t see the stocks movement until it was too late.

CREX’s failure to have a press release is a perfect example of an information inefficiency in penny stocks. Traders had over five hours before the company announced its website changes.

We’ve seen this pattern a lot recently. Companies like CytoDyn Inc. (OTC: CYDY), Decision Diagnostics Corp. (OTC: DECN), and AgEagle Aerial Systems, Inc. (NASDAQ: UAVS) preannounce catalysts like conference calls. These announcements can make people want to be in the stock before the call … That results in a classic “buy the rumor, sell the news” situation.

Although we’ve seen the pattern a lot … I think CREX is better because the company didn’t have to make a preannouncement. Traders started promoting the stock themselves (more on that later).

Reviewing My CREX Trades

Frankly, I didn’t have a good entry on CREX.

I started alerting it in the $1.50s to students, but I stayed away because it was so choppy.

I never trade choppy stocks well because I cut my losses quickly. When I enter a trade, I want to see it follow my trading plan immediately. If it doesn’t, I’ll exit and wait for a better time to enter.

Anyway … I eventually decided to enter when I thought the shorts were in trouble. I hope aggressive short sellers never learn … They make the best penny stock supernovas.

I chased an entry into the $1.80s but got an awesome spike into the low $2s meeting my trade goals. This quick morning trade netted me $1,650.* (Check out my verified trade here.)

(*Please note: my results are not typical. I’ve spent years developing exceptional skills and knowledge. Always remember trading is risky. Never risk more than you can afford.)

CREX tim Alerts
CREX chart: 1-day, 1-minute candle — courtesy of StocksToTrade.com

I usually only share my thought process with my students … but I want to help as many people as possible.

Below, I’ll share my Trading Challenge chat room commentary from April 28, 2020. It’s all time-stamped. Match my comments with CREX’s chart above.

My CREX Penny Stock Supernova Trading Challenge Comments

10:05:24 AM: “$CREX new fever inspection product on website, no PR yet, spiking and halted, one to watch for further spikin and probable PR soon”

10:10:47 AM: “I would not chase $CREX in the 1.60s just chats trying to pump to each”

10:11:28 AM: “$CREX down to the 1.40s, chatroom pumpers/followers crushed as usual”

11:21:20 AM: “$CREX 2.50 awesome short squeeze now!”

11:28:50 AM: “WOW $CREX 2.60s if I had any left I’d be selling now, congrats to all longs here with patience, what a short squeeze!”

I missed the best entry on CREX because I was being extra careful. I wanted to make sure CREX had the attention of real traders before I entered. Nothing’s worse than being fooled by low-level promoters.

Remember … most chat rooms consist of an unknown ‘guru’ alerting a ticker to subscribers with a vague message telling them to buy now.

That kind of chat room environment is sketchy. That’s why I’m proud to be fully transparent. I specifically tell my students to NEVER follow my alerts.

Study the alerts, but don’t follow them. I want my students to be self-sufficient traders.

Every time I alert a trade, I write a full paragraph explaining my thesis and outlining my trade goals. It’s critical to have a trading plan for every trade.

After my trades, I make video lessons for students so they can understand my mindset. That’s much more important than following alerts. Learning the proper mindset is far more important than making money in the beginning.

Learn the process. Once you understand the process … you can become a self-sufficient trader.

Promoters and Short Sellers — A Delicate Trading Dance

How did shorts get squeezed so quickly? It’s a delicate dance…

CREX first started to spike because a few chat rooms were promoting it to their members. At first, I wasn’t sure if the volume was based on the website change or if it was just chat rooms promoting it to each other.

You gotta be careful. Sometimes stocks run because of a small promotion. In this situation, there’s no real demand … and the stock will quickly fail.

So watch out for that. Whether it’s a morning spike or a company with news, there are so many chat rooms these days that promote stocks to subscribers.

I’d be a lot more popular and have a lot more students if I was like the other chat room ‘gurus.’ But I don’t care about making money trading. I want to teach you to become a trader. I’ve already made millions in the stock market.*

What’s the point if I’m the only one making money? I want more successful students. 

That said … I’m very grateful for the promotional chat rooms. They create awesome opportunities for me and my students. I’ll keep saying it…

The Best Promoters Right Now Are Short Sellers

But please don’t tell them! 

They’d hate to realize the market they’ve created. Short sellers are so high and noble. In their twisted minds, they think they’re doing the world justice by shorting these penny stocks. Little do they know that they’re the biggest reason these stocks go higher.

Short sellers act like angry vegans (no offense). They scream their exact positions all over the internet. I’m sorry … but I didn’t ask. Thanks for the awesome penny stock supernovas though.

Anyway, breaking down the dance for CREX … it was initially pumped by the chat rooms. Yeah, it had catalysts, but did it justify a 70% spike? I don’t know…

Then the noble short sellers tried to short it and failed. It all resulted in a huge squeeze my students report nailing.

This little ballet is awesome. Let’s review. Chat room promotions lead to short sellers selling … which leads to more promotion … and then a huge penny stock supernova. I LOVE it. 

Comments from My Dedicated Students

I made a video lesson for my Pennystocking Silver and TimChallenge members. A lot of them studied the lesson and are now prepared for the next penny stock supernova. Here are some of my favorite comments…

Buckers: “Thanks Tim, I enjoyed watching CREX play out throughout the day, even though I have an IB account I was more than happy to watch and learn. I love this dance!!!”

FJ_trading: “Love the short dance 👌”

Ammaizeroi: “Really appreciate your knowledge of the subject ….. More reasons to study a bet harder ! and further!!”

Maxamillion: “Thanks Tim, I missed the run up on CREX but appreciate all your help and information. Study, Study, Study!!”

Osquin1315: “I love this dance, need to learn more on how to spot it and take advantage of the dance. thanks for teaching us.”

Josephshorten: “I love this dance, watched it jump from 3 to over 4 was crazy how fast it moved!”

Glock26: “I love this dance. Just haven’t figured it out yet. Still studying, long way to go but I’ll get there. Thanks”

Branwillm87: “Love the dance of momentum. I successfully traded CREX today.”

Windwalzer: “Thank you for continually educating me/us on short squeezing, classic morning panic pattern, and all the mental preparation. I love this dance.”

If you’re serious about trading, you need to join the Challenge. All my top students come from the Challenge. I don’t accept everyone. But if you think you have what it takes … Apply for the Trading Challenge today.

Conclusion

The reason I actually have millionaire students is because I’m teaching a process. I teach repeatable patterns that continue to work with penny stocks.

Be careful chasing short squeezes. Yes … I chased and profited,* but it can be very dangerous. Short squeezes aren’t always as successful as CREX.

At the end of the day, I don’t care about CREX or the news.

I care about the supernova dance. It happens a lot with different stocks.

It’s funny that shorts are better promoters than the promoters themselves. I’ve tried to help them but they don’t listen. Oh well.

It just means there are more opportunities for my dedicated students. Do you think you have what it takes? Apply for my Trading Challenge today. 

I want to hear from you! Do you love patterns like this? Comment below…


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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 (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”