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Exploring the Penny Stocks Market from an Inside Perspective

This op-ed is not designed as an endorsement of a particular trading strategy, or a particular trading expert. It is an objective assessment of Timothy Sykes’ trading methodology.

Online day trading and the name ‘Timothy Sykes’ tend to go hand-in-hand. This specialized trading activity involves buying and selling financial instruments within the same day, capitalizing off small price fluctuations for profit generation. Many successful day traders pepper the scene, notable among them Timothy Sykes. His claim to fame began (ostensibly against his parents’ advice) when he used his bar mitzvah money of $12,415 to trade stocks.

By the age of 21, he became a millionaire. His trading abilities and business acumen allowed him to build a multi-million-dollar business, with global operations. Sykes uses his extensive knowledge of penny stocks trading to instruct new traders on the intricacies of the market. His book, ‘An American Hedge Fund: How I Made $2 Million As A Stock Operator & Created A Hedge Fund’ provides insights into his way of thinking, including novel trading strategies which other people can learn to use on their own.

Reviews have generally been positive, but the book alone is insufficient to provide an in-depth understanding of the trading strategies he uses. For that, it is strongly recommended that traders register for his course material.

As far as credentials go, he is legit. The star of Wall Street Warriors – a TV documentary about an American hedge fund manager, Sykes has featured in print and news media across the US. As a ‘Top 30 under 30’ in Traders Monthly from 2006, he created Cilantro Fund Management LLC which was a successful fund for many years.

Featured on global news media networks, Sykes switched gears to bring his vast knowledge of the financial markets to traders everywhere. The trading guides and tutorials actually provide useful insights into the pitfalls that many new traders face when entering the markets for the first time. The ‘Leap of Faith’ requires foresight and that’s what the trading guides provide.

Do Timothy Sykes trading strategies work?

Source: StockCharts CBOE DJIA Volatility Index

Penny stocks trading is a specialized skill. Depending on where they are traded, penny stocks are often categorized as any stock that is traded for under $5 per unit. At certain brokerages, this figure may be $3 or even $1. Regardless, these financial instruments are low-cost options with high attendant volatility. These types of stocks are defined by the SEC (Securities and Exchange Commission) as any stock that is traded under $5 per unit. Some brokerages may require thousands of units of penny stocks to be traded at any given time. These micro-cap stocks are inherently attractive in several ways:

  • They are low-cost options

  • They offer potential for substantial gains

Regardless, most experts advise caution when trading penny stocks. The volatility of such low-cost financial instruments may render them worthless at any given time. That's why it's imperative to understand the fundamentals of this niche market to be able to identify what factors are likely to cause prices to rise or fall.

Several important gauges are available to traders, including the volatility index (CBOE Volatility Index), the DXY (US dollar index) and general speculative sentiment, among others. These provide a broad picture of what market participants are doing vis-a-vis trading activity.

Timothy Sykes goes into detail with every conceivable element of the day trading arena. More information on his training regimen is available all over the web. In fact, you can even check this review which provides useful analysis of his methodology.

A Fast Pass to Riches?

There is no shortcut to long-lasting success, even if you ‘hit it big’ with a single trade. Good luck is one aspect of a successful strategic blueprint. As Sykes explains in his tutorials, guides, reviews, and analysis, the process is painstaking but the end result is worth the effort. It's worth pointing out that penny stock companies are not mass marketed in online and print media. Most of them fly well beneath the radar and significant research needs to conducted to identify the ‘bulls’ from the ‘bears’.

There are many concerns related to penny stocks trading, not least of which are the ‘pump and dump’ activities of speculators looking for a quick buck. Another factor to consider is the low liquidity in this market – since so little money is changing hands with relatively unknown stocks, the spread for the stocks is higher than blue-chip stocks. These are not proven performers, but a handful of them certainly have potential to be rising stars.

The trading strategy that he employs is relatively easy to understand, but it requires effort on the part of the trader. It's a learning curve that one needs to go through before one reaps the rewards of the efforts. One of the key concepts that he focuses on with these stocks is momentum. If a stock is moving upwards in price, that's the time to buy it. Once the momentum starts moving away from the stock, that's the time to sell it.

Unlike investors who buy and hold for weeks, months, or even years, penny stocks traders like Tim buy and hold for a couple of hours and then sell. Perhaps the most important lesson that he teaches by way of his demeanor and his words is detachment. This detachment is a necessary evil that a trader needs to understand in order to be successful.

Some stocks will rise and some stocks will fall – that’s the nature of the game. The training program focuses purely on the profit potential, not an emotional connection to the traded instruments. All in all, his methodology provides insightful information that is well worth the investment of time, effort, and expense.

Image source: Timothy Sykes Twitter Handle