I recently joined the Trading Challenge being run by Tim Sykes. I introduced you to Timothy Sykes in 2008 when I reviewed his book An American Hedge Fund. He took about $12,000+ that he got for his Bar Mitzvah, and turned it into $1.65 million as a young high school and college student.
And then he did it all over again… Starting with the same amount in 2008, and growing it again just to prove that he can profit from the stock market without a huge capital base to start.
For several years, Tim has been teaching students how to trade using his core strategy. The strategy involves short selling penny stock pump and dumps. He finds penny stocks (defined as trading at less than $5 per share) that are worthless at the core. The companies are shams, which generally tout some amazing product or service, but have no revenue, no profits, and often no real operations.
Promoters get paid to pump these penny stocks, often receiving shares of stock for their efforts. Thus, they have a vested interest in getting the stock price to rise quickly, as they will dump their shares at a higher price to cash out. If the promoters are good, the stock price rises quickly as gullible investors believe the hype and want to get in early with this new amazing technology or product!!!!
Again, the companies are shams and have no real technicals backing them up. They have little to no revenue and profits, and the stock price rises only in response to the promoters hyping and pumping the company.
Timothy Sykes looks for these hyped worthless stocks, watches the pump, and shorts the dump. Short selling is profiting from a decline in stock price. It involves borrowing shares of the stock to sell first (at a high price) and then buying back the stock (at a lower price) later to replace the shares that were borrowed.
I joined the Trading Challenge, which is really less of a challenge and more a course of study to learn this method. There is a ton of information to learn, but I think that my fraud investigation skills will serve me well in seeking out scam companies that are being pumped and dumped.
Short selling pump and dumps has been Tim’s primary trading strategy, but he also teaches students other methods of profiting in the stock market. I am focusing on shorting pump and dumps because I’m so new and need to get good at this before I worry about using other strategies.
One of my frustrations, however, was figuring out how to get through all the material. There are more than 900 video lessons to watch, along with a slew of DVDs outlining the strategy and the methods Tim uses to find these companies, watch the price action, and make a move that is calculated to give him the best risk/reward. There is simply a ton of material, and the learning path is not exactly linear. You sort of have to dive right in, prepare to understand very little of what you see at first, keep watching, and eventually it starts to fall into place.
I’m writing this article to offer a little bit of advice to new Trading Challenge students. You have to just start watching. But where should you start? If you join the Challenge, you’re going to get 60 emails (one per day) linking to best videos for beginners to watch. But you need to watch much more than that to get your bearings.
Start immediately on the DVDs, beginning with PennyStocking Part Deux and TimFundamentals Part Deux. And watch the videos linked in the posts below. With so many videos online, it’s hard to know which ones to start with. But someone has already done the work for us and linked to some of the best video lessons:
- The Best Video Lessons Every Penny Stock Trader And Short Seller Should Watch
- Should You Join My Trading Challenge? [10 DAYS OF STUDYING EXAMPLE]
- 15 Lessons For Penny Stock Beginners [WATCH ASAP]
- 20 Videos On The Stocks To Buy (How To Spot & Buy Breakouts)
This strategy is not simply about finding crappy companies to short. It is about finding them, watching the price action, and knowing when to short in order to profit. If your timing is wrong, you can lose a whole lot of money very quickly. This article summarizes some of the key things to remember when trading Tim’s strategy.