One of our favorite stocks in the market just spiked 2,638%.
Let that sink in.
If you had $2,000 of this stock before the spike, at its peak, your account would be worth over $52,000 … from one trade.
And it’s far from the last spike of its kind. (As always, past performance does not indicate future results.)
All of these setups follow a repeating strategy.
The same strategy I’ve taught for almost 20 years.
And while I pull millions of dollars from the market with this easy-to-follow process, I’ve seen traders on the wrong side of this pattern dig holes so deep their grandchildren will be in debt.
Not because the market is rigged. Not because they were unlucky. They just chose the wrong strategy and refused to learn the difference.
Granted, it’s not their fault (in the beginning). There’s a lot of false information, fake gurus, and bull-crap patterns out there.
But I’ve traded both sides of this momentum…
I know the true potential for gains and losses better than anyone.
There’s a light side and a dark side to this market. Most veterans know the difference immediately. But for new traders, the lines are completely blurred.
And with blurry vision, they eventually stumble right into a lion’s den.
I’m setting the record straight right now:
• The best strategy to use in the market.
• And a tempting “strategy” to steer clear of.
Choose a future full of market gains…
The Dark Side
I’ve seen countless traders blow up their accounts with this one “strategy.”
It looks logical on the surface. As simple as 2+2=4. Or the law of gravity, what goes up must come down.
Here’s the setup:
Almost every day in the market, traders see a small-cap penny stock spike +100%.
Whether it has news or not … Anyone who’s been around long enough will tell you these penny stock spikes don’t last.
As a result, traders start to think, “ I could short the stock at the top and ride it all the way back down.”
They’re not wrong about the pattern. When a penny stock spikes, it often crashes back toward pre-spike levels within a few days. Sometimes intraday. The logic feels sound.
That’s exactly what makes this so dangerous.
The Most Common Market Trap
When too many short sellers pile into the same small-cap stock, they squeeze each other out.
The price pushes higher and every short seller scrambles to cover their position, buying more shares. That pushes the price up further, which forces more covering, which pushes it higher still.
There’s no ceiling. No limit. No gravity.
As a result, unlike a regular long trade, short sellers can lose exponentially more than their original position. The stock can go up 500%, 1,000%, even more.
I’ve seen it happen in real time.
For example, on February 17, Polaryx Therapeutics Inc. (PLYX) spiked 2,638% during premarket hours.
This was pure short-squeeze momentum.
If you shorted that spike and guessed the top at 200%, you were in agony on your way to 500%.
At 1,000%, your future children dropped a whole tax bracket.
And at 2,638%, even your grandchildren were wincing.
That’s not a bad trade. That’s a generational loss.
I’ve seen traders blow up six-figure accounts in a single morning chasing this exact pattern.
Savings gone. Margin accounts wiped. Money borrowed from family: evaporated.
The math looked simple. But the market said otherwise.
The market doesn’t care that your logic was right. Price action is king. And price action on a short squeeze is absolutely vicious.
This isn’t a strategy. It’s a trap with a logical-looking door.
The Light Side
For every Yin there’s a Yang.
While short sellers got obliterated on PLYX, another group of traders quietly made a killing. And they didn’t do anything new…
They followed the same patterns I’ve traded and taught for almost 20 years.
Short squeezes don’t create new patterns. They amplify existing ones. The emotion that drives the price action is identical: fear and greed, the same cocktail that’s moved markets since the beginning of time.
The only difference? When overzealous short sellers pile in, those emotions get turned up to an eleven.
The spikes get more explosive. The breakouts get cleaner. And the opportunity gets bigger!
PLYX was a textbook breakout pattern. Picture perfect. The kind of setup I’ve drawn on whiteboards in front of thousands of students.
Source: StocksToTrade
PLYX chart intraday, 1-minute candles.
Now, look what happened the very next minute, at 6:35 a.m. ET:
Source: StocksToTrade
PLYX chart intraday, 1-minute candles.
The spike is so big you can’t even see the prior breakout level. And traders who were long had a full hour to sell for a profit until the price finally dipped below the prespike level.
That’s the strategy.
Trade the breakout pattern. Ride the momentum. Take gains. And move to the next one.
Don’t fall for the siren song of shorting crappy penny stock spikes. Chatroom pumpers and Twitter gurus make it sound sexy: “Easy money on the way down.”
In reality, it’s a first-class ticket to going broke.
If you have any questions, email me at [email protected].
Cheers,
Tim SykesEditor, Tim Sykes Daily
