At 21 years old, Tim Grittani decided to stop playing poker and making sports bets and, instead, started trading stocks for a living. Within three years, he was able to turn $1,500 into $1 million by trading penny stocks.
According to a CNNMoney profile on the 24-year-old trader, Grittani began this highly risky trading strategy when he was a senior finance major at Marquette University in Milwaukee. He had been playing poker and even scored a $9,000 win from a sports bet earlier in college, but he eventually lost the whole thing and quit gambling (so to speak). He tried his hand at stock trading and, within three months, was negative $1,300. Grittani decided it was time to get outside help.
Grittani searched the internet for guidance on stock trading until he came across Tim Sykes, who is famous for turning his Bar Mitzvah gift money of $12,000 into millions while in college. Sykes, who made his millions trading penny stocks, now shares his trading strategies through his newsletter and instructional video lessons and is considered a penny stock guru.
So if a trader can lose his shirt, why trade penny stocks in the first place? It is common knowledge that many penny stocks are part of the “pump-and-dump” schemes aimed at promoting certain penny stocks through email campaigns, message boards, and blogs, in order to pump up the price. Once the stock reaches a certain level, the scammers will dump their position in the stock, sending the price plummeting, while profiting from the scheme.
But Grittani claims he made his $1 million based on his knowledge of the penny stock market and how the pump-and-dumpers operate, without doing any of the scamming himself.
For example, the trade that officially pushed the value of his portfolio over $1 million was a short bet (betting that the stock price will go down) against a company that had been the target of one of these scams.
He had noticed shares of a company called Nutranomics (Ticker: NNRX) had tripled in just a month. Grittani saw this activity as a classic pump-and-dump pattern. After he detected that the stock began losing the upward momentum, he placed the short trade on the stock. Sure enough, the price dropped nearly 60% in less than 30 minutes, and he pocketed $8,000 on the trade in only ten minutes.
Penny stocks are very thinly traded stocks valued at less than $1 per share (although some may trade for up to $5). They are usually not traded on the major exchanges like the NYSE, but instead are traded over-the-counter through OTCBB and pink sheets. Due to their low capitalization and illiquid nature, penny stocks are highly speculative and traders should be prepared for the possibility of losing their entire investment.
Penny stock guru, Tim Sykes, told CNNMoney:
I think it’s [penny stock trading] mainly for people who are gamblers, but at casinos you play with low odds. With penny stocks, there are patterns that are very predictable.
Using those very patterns, Grittani earned his largest profit with a quick trade of Fannie Mae (Ticker: FNMA). While there wasn’t a particular news catalyst that caused him to look at the mortgage giant, Grittani noticed increased volume and activity that suggested the stock would plummet and then bounce back. Through a combination of long and short trades, he earned $215,000 in one day.
Learn more about Tim Sykes Penny Stock picks here.