Tim Grittani (left) began day trading penny stocks with $1,500 three years ago. By following the lessons of penny stock guru Tim Sykes (right), Grittani has raked in over $1 million in profits.
About three years ago, Tim Grittani decided to begin trading stocks with his life savings of $1,500. Today, the 24-year-old’s portfolio is worth more than $1 million.
How did he do it? Not by buying and selling stocks of large and well-known companies like Apple (AAPL) or Ford (F). Instead, Grittani trades penny stocks — very small companies that typically have a price below $1.
He’s the first to admit that it’s a risky strategy. And it’s not for everyone.
“I’ve been trading every single day for almost three years, and it’s been a slow, day-to-day process,” Grittani said. He spends the entire trading day in front of a computer screen, in order to buy and sell stocks at the right time. He is sometimes in and out of stocks within minutes, and the longest he ever holds shares is a few days.
So why trade penny stocks? Many of these companies are speculative because they are thinly traded, usually over the counter instead of on major exchanges like the New York Stock Exchange. The Securities and Exchange Commission warns that “investors in penny stocks should be prepared for the possibility that they may lose their whole investment.”
Plus, penny stocks are notorious for being part of so-called pump-and-dump schemes, in which scammers buy up shares and then promote it as the next hot stock on blogs, message boards, and e-mails. Once the stock price is artificially pumped up by all the talk, the scammers sell their stake, leaving unsuspecting investors with big losses.
But Grittani has been able to profit because it’s such an inefficient market. He knows what to look for and recognizes how to make money out of pump-and-dump scams without doing any pumping or dumping himself.
In fact, the trade that officially pushed the value of his portfolio over $1 million was a short bet against a company that had been the target of a pump-and-dump scheme. When investors short stocks, they borrow shares and sell them with the hope of buying it back later a lower price and pocketing the difference.
Grittani had noticed shares of a company called Nutranomics, which trade over the counter under the symbol NNRX, had shot up due to what he felt was the manipulation of scammers: the stock had tripled in just a month. Last Monday, Grittani detected that the stock was losing momentum, and he felt that at the very least a small pullback was imminent.
Sure enough, the stock tumbled almost 60% in the span of 23 minutes. Though he didn’t benefit from the entire plunge, Grittani walked away $8,000 in ten minutes.
Grittani learned about penny stocks from Tim Sykes, who is famous for turning his Bar Mitzvah gift money of about $12,000 into millions by day-trading penny stocks while in college. For the past five years, Sykes his been teaching his strategies through the sale of instructional newsletters and video lessons.
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