Editor’s note: This article was first published in April 2014, and its figures, including the portfolio value of just over $1 million and the ages mentioned, are as of that time.
We all know that the penny stock market is heavily manipulated. But about three years ago, a young man named Tim Grittani decided to start trading in it. He did so by putting in all his savings, which at the time amounted to $1,500. Today, at 24, his portfolio is worth just over $1 million. How did he do it?
First of all, we need to know what we’re getting into when money is involved. Grittani knew that one of the strategies used by fraudsters such as Jordan Belfort himself (the Wolf of Wall Street) is the “pump and dump”: they buy shares at ridiculously low prices and then promote them, looking for victims with money to sell these shares to, in companies that are usually worth nothing.
Once that is clear, it’s a matter of using the pump and dump to make money. In other words, although Grittani hasn’t explained his exact method, you can infer that if a penny stock soars 700% without any significant news to back that astronomical rise, one thing is “certain”: the stock is going to collapse again.
Grittani told CNN about Nutranomics, a penny stock that tripled in value during an ordinary trading day. He knew that stock market fraudsters were behind the rise, so he shorted the company (bet against it), and sure enough, the stock fell 60%. In just 23 minutes he made $8,000.
It’s exactly what we described in a previous article about Hypersolar, when we said there was a “wolf” behind its rally and that the shares would go back to where they belonged. You can check that I wasn’t wrong. It was far too obvious.
But Tim Grittani himself warns that this investing strategy is not for everyone: if you invest in this market without knowing what goes on behind the prices, the most likely outcome is that you’ll lose your shirt.
The young man’s mentor is Tim Sykes, a trader who had already pulled off the same feat as Grittani, turning $12,000 into $1.6 million, also in the penny stock market.
Both say they recognise predictable patterns in this risky market, but they insist that getting into OTC Markets stocks is not for long-term investors who want to make money for their retirement, nor even for traditional traders. It’s for high-risk players, because in this market you can lose your whole investment in the blink of an eye. Of course, as we can see, it can also be very profitable.
Grittani says his best day came from a series of combined long and short positions, at the end of which he closed the trading session with $230,000 in profits.
If intraday trading carries enormous risk, and penny stocks are riskier still, combining the two is like playing with a bomb in your hands. Of course, as we can see, only people who are able to take big risks get big rewards.
To better understand how this young man handles risk, suffice it to say that he loved sports betting, where he won a lot of money and then ended up losing it all again. The same thing happened to him at poker. He also blew the money in his first trading account. Let’s say he is someone who has always been willing to lose money, but this time he seems to have learned a method.
Even so, neither trading nor OTC Markets are for the faint-hearted. That said, my most sincere congratulations to this young man.
Further reading
Featured image: cweyant from Syracuse, United States, CC0 1.0, via Wikimedia Commons.
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