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Trading Lessons

This is My Comfort Zone

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Written by Timothy Sykes
Updated 8/10/2022 6 min read

Every day, I get traders who sign up for my millionaire challenge.

Many of them come to me after years of struggling to turn a profit.

A long time ago, that was me. I studied every area of the market, scouring charts and setups to find the ‘perfect’ system.

That’s when I stumbled across penny stocks.

At first, I was so excited to turn a profit I lumped all cheap stocks together.

It wasn’t until later that I realized over-the-counter (OTC) stocks were my real jam.

This became my comfort zone and the foundation for my teaching.

Don’t get me wrong, there are plenty of other consistently profitable strategies out there. Mark Croock is a great example of someone who applied my teachings to become an excellent options trader.

But my strategy works best with OTC stocks.

What is it about these stocks that make them so unique?

More importantly, why does my strategy work better with OTC stocks than other penny stocks?

The answers to these questions will help you pinpoint the best stocks for your strategy and maximize profitability.

Measuring The Difference

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First things first. Let’s discuss how the plumbing behind these markets work.

Most of us are familiar with the typical exchange like the Nasdaq or NYSE.

Whenever I buy or sell a stock, it’s either routed to a market maker or directly to the floor.

Market makers are like stock warehouses. They hold shares in inventory which they use to fill your order.

They manage their inventory based on risk, aiming to make money through the spread between the bid and the ask.

Any stock listed on one of the main exchanges needs to meet various reporting, revenue, and structural requirements.

OTC markets have much lower listing requirements including market capitalization size, revenues, and the like.

Issuers who list on the OTC markets are divided into three categories: OTCQX, OTCQB, and OTC Pink, with OTC Pink being the riskiest.

Unlike the Nasdaq stocks which trade on a central exchange, OTC stocks trade through a broker-dealer network. This means there is no physical location or market maker.

Generally speaking, the floats and volumes on OTC stocks are much lower than regular stocks.

From an investment standpoint, OTC stocks are very risky.

From a trading standpoint, they offer opportunities you won’t find on the regular exchanges.

Price Action Comparison

I want to show you a FaZe Holdings Inc. chart (NASDAQ: FAZE). This is a look at a day when I tried and failed to take a long position in the stock.

This one-minute chart shows an incredible amount of chop as the stock ground its way higher.

Right now, my favorite way to step into trades is with a dip buy.

Once I enter a stock, I immediately cut my position if it trades sideways or lower.

I want to see runners.

The problem is with regular stocks, there is a lot more chop, especially ones with large floats.

Compare that to the chart below of Planet Resource Recovery Inc. (OTC: PRRY).

Notice how the stock made a big run out of the gate, pulled back hard, and then ran almost immediately?

That’s what I want to see. I know whether the trade will turn a profit or flop out within minutes.

Other Considerations

Tim Sykes in a boat in Italy checking the stocks on his top penny stocks list
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When I enter and exit OTC stock trades, I like to use Level 2 information.

Level 2 data displays the current orders in the system.

While that’s available for stocks listed on the regular exchanges, adding market makers into the mix makes it much harder to read, if not impossible.

On OTC stocks, Level 2 displays what I would consider a clearer picture of buyers and sellers.

Not all brokers support Level 2 data, and many don’t allow for OTC trades.

That’s why I love our StocksToTrade platform, which comes loaded with Level 2 data and connects to many major brokers.

As I mentioned earlier, OTC volume tends to be lighter than stocks that trade on regular exchanges.

That’s why I look for stocks with catalysts that encourage activity. Heavy promoter involvement also helps to drive more trading.

More volume also tightens the bid/ask spread, allowing me to execute better prices.

Typically, this isn’t a consideration for stocks listed on the Nasdaq. But it’s something you need to pay attention to when trading OTC stocks.

Final Thoughts

top penny stocks list weekly update
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OTC stocks mesh with my trading style because they tend to run or fail very quickly.

That makes my decisions more straightforward and allows me to optimize my trading results.

Get all the ins and outs of how I trade part-time and still made over $80,000 in the first half of 2022 when you sign up for my millionaire challenge.

Click here to learn more.


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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”