Decoding Penny Stocks with Timothy Sykes

Ishan Pandey: Hi Timothy, welcome to our series “Behind the Startup”. Please tell us about yourself and the story behind how you got into trading penny stocks?

Timothy Sykes: Senior year of high school, my parents gave me control of my $12k Bar Mitzvah gift money that had just sitting in savings, thinking I’d lose it all it the stock markets and that it would be a good lesson for me, but instead I got obsessed with studying & learning patterns and turned that $12k into $100k within two years, then $1.65 million before I graduated college, trading thousands of lower-priced penny stocks that worked better for my small account...from then on I’ve been hooked to this niche that most people hate but misunderstand. Now I’ve made nearly $7 million in total trading profits, lots of lessons and losses along the way too, and these days I donate all my trading profits to charity to focus on teaching my students how this niche works!

Ishan Pandey: When scouting for Penny stocks, what factors do you consider before opening a position?

Timothy Sykes: Because 90% of traders lose and 99% of penny stocks fail, I go into any play expecting the worst, but I’m willing to trade penny stocks that fit my favourite patterns I’ve refined over the years. I like to buy penny stocks that announce big new contracts or well-known investors because they’re so low-priced. Any big win in business is a HUGE legitimizer for their stock, even if they eventually fail in the long run...I’m just holding a few hours or days as the news spreads and it lures less meticulous/cynical traders in to buy and hold for the long-term while I’m out far sooner because I understand how bad the odds of success are.

Ishan Pandey: Liquidity is a huge problem when it comes to investing or trading penny stocks. What advice would you give to novice traders on buying the penny stocks without increasing the buying price due to low liquidity?

Timothy Sykes: My biggest lost of $500,000+ was on an illiquid penny stock where I believed in the company’s technology, so I didn’t mind...now I learned from mistakes like that, I never believe in any company I trade and I stick to the most liquid/most actively traded penny stocks that trade millions if not billions of shares per day, so I can enter and exit easily within a few seconds. That big loss sucked but REALLY helped me what NOT to do, and so now I’m a far better, more conservative trader and teacher as a result.

Ishan Pandey: When trading penny stocks, which strategy is best? Should traders scalp or swing? Further, what should be the ideal timeframe?

Timothy Sykes: I wouldn’t trust any penny stock too long, they’ll always break your heart if you let them, so I can’t hold more than a few days max, and even that’s pushing it since you never know when the bottom can fall out as these companies always manage to find new ways of failing, shocking most unprepared investors and traders.

Ishan Pandey: What tips would you give to novice traders in terms of risk management while trading penny stocks?

Timothy Sykes: RULE #1 IS CUT LOSSES QUICKLY!

I can’t tell you how many 1-2-3% losses I have, but taking those small losses in a disciplined manner prevents any small mistakes from turning into potential disasters. Stubbornness gets most people to overstay and even double up or triple up on their position size because they’re so afraid of admitting they were wrong -- I’m not. I lose roughly ⅓ of the time, but try to minimize my losses as best I can... it’s been the key to my success over the years.

Ishan Pandey: Does technical analysis work with penny stocks? Further, should traders focus more on the technicals or the fundamentals?

Timothy Sykes: Because most penny stocks are failing companies, they have little to no fundamentals, so their stocks move entirely based on technical analysis and hype...they’re always hyping up some new product or technology and when you have enough hype along with a seemingly solid technical backdrop, that lures naive buyers into investing for the long-term despite these companies being bound to collapse. The key is being early in the hype process and trying not to be there, or even short selling or betting against any penny stock that has risen enough, when it all comes crashing down.

Ishan Pandey: Are there any platforms or services that can help traders to scout penny stocks?

Timothy Sykes: I’m a proud investor in http://stockstotrade.com and I helped design many of the scans they built into their platform. It’s a Godsend for penny stock traders, especially the Breaking News feature, which two ex-hedge fund traders curate. I’d estimate ½ my trading profits these days are due to this platform alone. StocksToTrade is one of my few investments as I think it’s good to invest in products you know firsthand that provide fantastic value to their customers.

Ishan Pandey: What are your views on the expansion of quantitative easing programs by central banks worldwide? Further, how is it going to impact the stock market, specifically, penny stocks?

Timothy Sykes: There’s so much dumb money now in the markets, not just stocks, but all speculative niches like crypto, forex and even collectables, it’s truly a circus that will probably end quite badly in the coming years as the inevitable failure of most traders will cause massive market volatility, and opportunity, if you’re prepared and cynical enough to survive the giant whipsaws.

Ishan Pandey: Are you dabbling into cryptocurrencies? If yes, what are your investment and trading strategies for the cryptocurrency market?

Timothy Sykes: Sadly, I have tons of impostors on social media and they all try to lure my followers and students into opening shady crypto wallets with BS “double you’re $ in 24 hours” type offers so even if I loved the sector, I could never get behind it...I think there’s many regulatory risks and scammer risk, so while I’m trading crypto-related penny stocks since they often fit my favourite patterns, I have no cryptocurrency accounts. I have to warn daily about how many scams there are in this Wild-West-like sector.

Ishan Pandey: What fundamental similarities and differences do you find between penny stocks and cryptocurrencies when investing and trading in them?

Timothy Sykes: The vast majority of both are complete scams, so expect the absolute worst and you’ll never be disappointed! So stay safe, but also capitalize on the absolutely glorious volatility in these markets while it lasts.