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TIMOTHY SYKES - Trading Penny Stocks (An American Hedge Fund)

Updated: May 25, 2021

Timothy Sykes - Penny Stock Trading Millionaire



An American Hedge Fund, by stock trading millionaire Timothy Sykes.

A rags to riches tale of a college student who turned his $12,000 Bar Mitzvah gift money into millions.

Sykes gained significant popularity and regularly appeared on CNBC, all by the age of just 26.

Proving that you don’t need to be a rocket scientist to become wealthy in the stock market, Sykes takes us through his journey from college boy to millionaire within a year.

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Sykes took an interest in stocks at a young age and often skipped school lessons to research stocks in the school library. His evenings were either spent watching CNBC or looking at financial message boards on AOL’s online service.

He soon gained early acceptance to college and was able to give his full attention to trading stocks.

Armed with $12,000 dollars of bar mitzvah money in his account, he persuaded his parents to open an online brokerage account with a company called Suretrade, they were amongst just a few brokerages offering $10 commissions per trade.

In 1998 Sykes was ready to make is first trades, but with a relatively small account his choices were limited to stocks priced below $5.

Little did he know at the time, but a naïve Sykes was about to enter a period of rebound and a dot com era that would send tech stocks to stratospheric heights.

Early into his journey Sykes recognised that certain news proved to be the main catalyst for a stock’s trajectory. He saw positive earnings, new product announcements, and partnerships to have the most impact.

Since penny stocks were the focus for Sykes, any increase in trading volume from a piece of news would dramatically increase the price of the stock, lasting from a few hours to a few days.

He also recognised that speed was a key factor to reacting to such information, and that competition for such information was fierce.

Publicity for these penny stock companies was crucial and many used varying tactics to gain as much attention as they could. In particular, companies would issue press releases stating they had added dot COM to their corporate name, a popular tactic since technology companies were all the rage.

Basic company fundamentals went out the window, if a tech company showed an ounce of promise, momentum would gain and traders like Sykes would chase the price higher. This was speculation to the extreme… It’s no wonder the tech index grew more than 300% within the space of a year and all sorts of records were being broken.

The first few months of 1999 saw Sykes taking advantage of the dot com publicity stunts, turning his initial $12,000 into $25,000. His initial tactic was simple, if the price never reacted swiftly to a positive press release, he would sell quickly, regardless if the position showed a loss or a gain.

More often than not, the price would rise as expected, and Sykes would consistently take a 20% profit. He knew price could keep increasing but he was happy to exit the position and move his cash into the next momentum play.

By the spring of 1999 Sykes managed to grow his account equity further to $30,000 through several small successes.

Soon after he stumbled across a company called Welcome To Search Engine. The stock traded at below $5 per share and was in the process of acquiring an internet search engine company.

Sykes seen this as a great opportunity and put up half of his account equity, which he called playing it safe.

He decided to watch the stocks price movement and wait for his moment to strike, this usually meant a spike in price accompanied by volume.

The price however flat lined for a while, and an impatient Sykes who was so convinced, decided to enter the trade. A few days passed and the priced continued to stagnate, and a frustrated Sykes sold for a loss of $1000.

Disheartened and left questioning the strategy, his confidence began to dwindle.

A few more days passed, and he eventually spotted the action he was looking for, volume increased, and the price started to climb. An excited Sykes again entered the trade and watched the price rise before plateauing, at which point he sold for a 17% gain earning $4000 in the process.

Although the monetary gain was not huge, Sykes said that this was his greatest trade because it gave him proof of concept, taught him to be disciplined, and reinforced the importance of waiting for the market to move, and validating his entry points.

Next up was a company called Nettaxi, another popular internet company which seemed to be trading at up to 12 times less the valuation of others in its niche.

The price had languished for some time, but Sykes seen this plateau as an opportunity to take a position, he again put up half of his trading account. Once more, he took to the message boards to promote his thoughts and waited for a reaction.

In no less than a week the price increased 43% netting him a further $7000 in profits, pushing the equity balance beyond $40,000.

Shortly after Sykes discovered that his parents were concerned with his newfound wealth, greed, and level of risk he was taking, also discussing the closure of his trading account. They eventually agreed to allow him to continue but at a more conservative level.

Another week went by and Sykes came across a search engine stock called

Similar to the previous trades there was an increase in price accompanied by increasing volume.

On this occasion, and true to what ‘he’ called his more conservative approach, Sykes used a third of the account equity.

After just four days the profit on the trade was showing 37%, netting a further $5,000 profit and taking his account to $46,000.

The stock charts for this and many of the trades Sykes made are hard to come by, although I found this original advice slip to his members on the web, showing the date of trade, the opening and closing price, and the eventual return.

Sykes continued his search for undiscovered internet companies, whilst paying particular attention to volume and price increases.

In the fall of 1999, after numerous trades with minimal impact to account equity, Sykes switched his focus to Initial Public Offerings where he tried to take advantage of increasing volatility and price swings. Unfortunately, he made a rookie mistake by holding onto one of his losing positions for too long, his stubbornness would cost him thousands, and by November 1999 his account equity languished at almost $38,000.

Sykes put his trading on hold for a short while to recalibrate his thoughts and strategy. In doing so he created a digital newsletter to share his recommendations with others. His success earned him a subscriber following at the time of almost 600.

This example provides a typical posting of a Sykes recommendation. This was posted in October 2019. Notice too that there is a reported 4.7 million total profit from his advice.

For those looking to delve deeper into his most up to date reported stats (through to 2020), you can pause here.

For those interested I’ll leave a link to his paid service in the description below.

Reinvigorated, a confident Sykes began trading again, this time looking at penny stocks listed on the ‘Over The Counter Bulletin Board’ exchange.

This time he allocated a far more sensible 10% of equity against each position.

Again, looking for significant volume increases, Sykes scoured thousands of daily stock charts, and in no time he found himself making 20% plus gains in just hours from the point of entry.

By December 1999 Sykes equity increased significantly to $72,000, and by his own account, so did his ego.

His strategy evolved over time from being a high risk, singular position, momentum style strategy, to a lower risk, multiple position, momentum style.

He cut his losses short when positions moved against him and allowed his winning trades to run, creating a favourable risk reward ratio.

He ended the year with an equity balance of $120,000.

By the end of January 2000, following the same strategy, Sykes equity surged further to an astonishing $250,000, a gain of $130,000 in just one month. His newsletter following also increased significantly as a result.

In February 2000 Sykes came across a company called Illinois Superconductor, the company promised to remove poor mobile network connectivity by providing a breakthrough product.

The price of the stock increased through January from almost $1 to the low teens, and in late February a press release was announced causing the stock to increase 25% in one day.

The press release occurred on a Friday and Sykes believed that the hype would continue through the weekend. More confident than ever he dismissed his more cautious approach and placed three quarters of his net worth onto the trade, purchasing 10,000 shares at $17 each before the market close.

This was a bold speculative trade to keep open over the weekend to say the least, any negativity could cause the stock to gap lower on the Monday open, and with 75% of his equity at stake it was an all or nothing move.

Sykes counted down the open on the following Monday, frantically refreshing his screen for price updates, fortunately the price kept increasing and by 9.30am Sykes was able to close his positions at a price of just over $29 per share, an astonishing gain of over $123,000 in under 3 days, taking his equity to $373,000.

The stock continued its rise to $49.45 over the following 48 hours before crashing to $15 the following day. A reminder of how volatile these stocks were.

The mania surrounding technology stocks continued through to mid-March 2000, and Sykes continued with his gap up strategy which was netting him an incredible average of $23000 per day.

Sykes himself said;

“To add to the absurdity of these gains, I didn’t even have many losses during this stretch. My greatest trading losses never exceeded a few thousand dollars, while my largest gains cleared $50,000 a piece”.

The exuberance finally ended and instead of stocks gapping up, most started to gap down.

By the end of April 2000 the strategy lost its edge and Sykes banked $840,000.

After taking some further small trades throughout the year without success Sykes took some time out. Eventually re-entering in 2001 he reversed his strategy to shorting stocks, in anticipation that the once highly regarded tech stocks had lost all their hype and hysteria whilst exposing their lack of fundamentals to all.

In similar fashion, Sykes risked a huge percentage of his equity on each trade and managed to increase his equity to beyond a million dollars.

With such spectacular performance under his belt, Sykes wanted more success and decided to take on the hedge fund industry. He started a fund in March 2003 which he named the Cilantro Fund.

Although this review will not take us through his hedge fund journey, we can see the returns of his career here.

We can see his personal record which shows an average annual return of 323% for four years, followed by his hedge fund performance averaging 6.04% for the next 4 years.

Sykes put his lack lustre fund returns down to being unable to trade the penny stocks he was used to as a smaller trader, predominantly due to the vast amounts of money involved.

The most interesting take for me from this book is how correlated the Technology index was to the asset bubble theory.

Without taking away from Sykes ability, it is clear he took advantage of the media attention, enthusiasm and greed associated with the Mania phase of a bubble.

If we overlay the technology index on to the theory, we can better understand its relationship between the psychology of the market and the correlated performance.

We can see how the technology index closely followed the bubble theory beyond delusion, closely followed by fear and capitulation during the blow off phase.

In summary the personal trading portion of the book demonstrates the ‘approach’ Sykes took to make his fortune. Unfortunately, the book did not go into the technical criteria used to analyse specific entry and exit points.

Understanding the phases of market psychology and taking advantage of them when they occur is the key message to take from the book. Additionally, if you plan to take Timothy Sykes extremely speculative approach, be sure to cut your losses short and be prepared for a psychological rollercoaster.

A great story of inspiration but lacked in real transferable knowledge. Perhaps intentional in order to persuade traders to join his service….

Thanks for listening and again please hit the like button, subscribe and join our community below.

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