I previously wrote about Timothy Sykes and his attempts to teach stock trading to the masses. That post is now my most commented-upon post on this blog and one of the most frequently viewed. Since writing that post I have changed my views on Timothy Sykes.
First, I have concluded that at least at the present time Sykes’ trading system works quite well. This does not mean that it will necessarily continue to work, and anyone using his system should not put blind faith in it. That being said, the basic premise of short-selling hyped-up stocks should continue to be successful far in the future, although the details of how best to do that will certainly change. I believe in Sykes’ system enough to trade a decent amount of money with it, and so far I have made quite a bit of money trading his system. You can see some of my successful trades on Covestor (on which I am currently ranked 13th).
I have become so convinced of the benefits of Sykes system that I bought his DVD, subscribed to a year of his TimAlerts service (whereby he sends his followers alerts every time he makes a trade, and I even recently bought the first Lifetime TimAlerts subscription (for which I paid him $2,000). I even signed up to be an affiliate to sell his products.
Normally a trading system will either produce a good probability of a profit (i.e., a high percentage of trades will be profitable) or a good ratio of average profit to average loss. Sykes’ system generates both a high percentage of profitable trades and profitable trades that make far more money than unprofitable trades lose. In this sense it is the Holy Grail of trading. The system’s major limitation is that it generates very few trading opportunities where more than a few thousand dollars can be easily deployed, although there are occasional trading opportunities where hundreds of thousands of dollars can be easily used. Also, there are relatively few trading opportunities. This limits the amount of money that can be made with this system to maybe a couple hundred thousand dollars a year at best. However, this limitation of the system also minimizes the chances that hedge funds will exploit the same inefficiencies that the trading system exploits and thus render the system ineffective.
The other problem with a trading system that produces few trading signals is that it is hard to keep from over-trading. The hardest thing to do is sit and wait, as evidenced by Sykes’ own history of impulsive, forced trades. While he was still able to reap huge profits, others may be less disciplined. I have already seen evidence of followers of Sykes’ TimAlerts service trading way too much (and Sykes himself has criticized his followers for this numerous times). I think it likely that some of them will trade away all their profits by forcing trades when the risk/reward ratio is poor.
My Original Criticisms Still Stand
In my original article on Timothy Sykes, I laid out three criticisms of his plan to teach trading to the masses. These criticisms still stand, although these criticisms point out the limits of an otherwise powerful system, rather than revealing the ineffectiveness of the system as I argued in my original article. Anyone considering following Sykes should consider the following:
1. While Sykes’ system will degrade gracefully (meaning that if it stops working it will gradually generate smaller profits, not change quickly from generating profits to generating large losses), I have already noticed cases where he and his followers’ actions have changed the chart patterns his analysis relies upon. He has enough TimAlerts subscribers that they can easily move the market in certain illiquid stocks. This makes using his system more dangerous than if he did not have so many followers.
2. Trading takes time. For many of Tim’s followers, with tiny $5,000 accounts, the amount of time they spend trading the system (especially if they do not follow his advice and ignore non-ideal trades) can be disproportionate to their gains. While I am a full-time trader (I utilize a few strategies, not just Sykes’ strategy), many of his followers have other, full-time jobs. Those people would be wise to concentrate only on the most ideal trades, lest they ruin their careers in a vain attempt to get rich trading.
3. Most people do not have the emotional restraint to be successful traders, no matter how simple and effective the trading system they use. This is my most important criticism. As even Timothy Sykes points out, over 95% of stock traders lose money. Those who cannot handle the emotional demands of trading will likely lose money even if they try to trade a system as simple and profitable as Timothy Sykes’ trading system.
As an illustration of my third point, I bring you the following example.
Nothing is Foolproof: The Case of Ross
As a subscriber to Sykes’ TimAlerts I get to see the comments made by other subscribers; they often share their trades and thus I can get a feel for how Tim’s followers are doing. The problem with any kind of stock trading, no matter how good the system, is that it requires a human to trade it. Human emotions seem almost designed to prevent successful stock trading.
I present here the case of “Ross”, a subscriber to Sykes’ TimAlerts service. Ross should serve as an example that an an emotional, undisciplined person can lose money trading a good trading system. I should point out that while he subscribes to Sykes’ alert service, Ross has not bought Sykes’ DVD. He also appears to be the exception among TimAlerts subscribers — most who post their trades appear to make money.
Sykes bought 4C Controls (OTC: FOUR) at $2.85 on August 18th. At 12:20pm Ross posted [subscribers-only link] “I am in with 300 @ 3.00”. Sykes sold the stock around 12:55pm after it failed to go up as he had predicted. Ross posted that he was holding FOUR, saying “It looks like it is trying to work it’s way back up.” Sykes responded, saying “ross, in time, u’ll learn to cut lsoses quickly and not risk disasters.”
At 2:02pm, Ross wrote, “FOUR looks like it is going the right direction now.” Sykes castigated him, writing, “haha ross, looks like u got lucky, bad lesson.” Ross continued to hold FOUR overnight; the next morning he wrote, “Well I learned the hard way and lost more then half my money on FOUR this morning. I got in @ 3. and just sold for 1.35 That hurt. All my other trades I have done have tanked on me as well. Pretty much lost most of my money. Looks like I am out of the game for a while.”
While trading FOUR lost Sykes money too, Ross also managed to mess up easily profitable trades by letting his emotions get in the way. He said, “I messed up on USS and ZYXI and EVSO as well. I also made some other trades a friend suggested as well and they went the wrong way.” This was despite Tim having profitably traded those stocks. I myself had a profit margin of over 20% on USS.
If you want to try trading stocks, try following Tim Sykes’ system (I suggest just reading his website and analyzing his trades for a few months, although you can go ahead and directly buy his DVD or TimAlerts trade alerts service if you are rash); it is the best stock-trading system I have seen, as evidenced by Sykes’ top rating on Covestor and his multi-year performance record. However, most stock traders will lose money because they let their emotions rule them; using a profitable system will not prevent them from losing money. Recognize your limits and do not try to trade if you do not have the requisite emotional control. Don’t be like Ross.
30 thoughts on “Why I Paid Timothy Sykes $2,000”
Thansk again, but mind you Ross is the only person–out of hundreds–to show big losses and its cuz he didnt cut his losses quickly…in that same thread, I even told him I always cut losses quickly and he ignored me. I can’t help people who ignore the rules. Also, not sure if he has my DVD, but judging from his stubbornness, I doubt it
My bet is you probably have more than a few who lose a bit of money, get discouraged, and then stop subscribing to your alerts service. How many people have you had cancel / not renew?
had about 30 cancellations over 3 months, tough to lose when i’m 23 for 25 in my picks so far, even the worst timers–aka me–are profiting…most are just watching, thinking its too good to be true
Michael. What do you think about Alliance Semiconductor Corp. (ALSC.PK)? They are dissolving the rest of the company. The auction rate certificates look kind of messy
“Ross” was a greedy dumb@$$.
Too bad for him.
According to famous commodity trader Larry Williams the to key trading success is money management. In other words don’t take large positions. If the aforementioned “Ross” took a small position that greediness wouldn’t have messed him so much and he could have learned from it. I’m no genius and even I know that. Well hopefully “Ross” gets some more money and more discipline. Otherwise he should stick to Vegas where he can blow money and be entertained at the same time.
I don’t see any affiliate stuff on your site Reaper. You probably should make it more clear if you actually want to hawk any of his stuff. Well if I ever do buy Sykes’s stuff (chances are I won’t as I’m a cheap S.O.B.), I might as well help you get a cut. 🙂
Hey Tasty, I have to say that I hate gaudy banner ads. I am not trying to make a business of hawking Tim’s products, just earn enough to pay the bills of this website (which are rather high considering I have a $400/hr defamation lawyer on retainer). Anyway, I think it is both more honest and effective to just tell the truth about what I think about Sykes’ trading system and then use my affiliate links to his products (as I have done above).
I dislike banner ads too, they pollute visual space. Don’t blame you for not using them and didn’t mean to imply that I suggest that you do.
I was thinking more along the lines of a link under “categories” on your sidebar. I don’t think that would be a dishonest way to go about it. You could even set it up where the prospective buyer would be taken to this page so they could have the option to read your review before pursuing a purchase. At any rate that option would be much more visible to more traffic without really detracting from the look of the site.
That is if you care to really sell any Sykes gear (if I were in your position I don’t think I’d care to try). It’s not like you aren’t profiting from his system in other better ways.
In any event here’s hoping you don’t have to use that defamation lawyer much. 🙂
What if “Ross” didn’t have the $25K account that allows for day trading?
You have no choice but to hold it overnight and sell the next day unless you’re a day trader.
In that case I fail to see where he used emotion here. Right?
Fredro – if someone doesn’t have $25k, they still can make 3 daytrades each week. Someone in that situation should plan ahead so that they are never forced to hold a position overnight because of the rule.
I am ROSS and I call BS. I do have TIMS DVD and I was out of day trades and took a chance. I had just started, new to trading and Tim was where I started. I left because of that comment and developed my own trading style and have succeeded. I have gained back all my losses and making money on my trades now. I asked this to be retracted but it never was. I have day trade account now. Made over 15K in the last month and in the green. So all I have to say now is STFU. LOL!!
Hello Ross! I hope you are doing well mate!
Can you please find me in facebook or hit me on my email, I really need to ask you something!
Ican P. Ivanov
Cheers! Best regards
What do you call BS about, Ross? Everything I said was true. Also, I never received any request to retract this. I certainly won’t retract it because it is instructive and because I just used your user name (so I wasn’t exactly invading your privacy). Congratulations on your current success.
I never got a retract email until just now, congrats on the $ ross, you’re not an idiot, u were just undisciplined…never make a trade u cant get out of immediately/same day
if we consider that tim’s top students (and i am saying TOP) made only 70k in one year or so as he admits it himself than we could easily see how his techniques will not make you any serious money. I mean yes you can learn some stuff but if his top students made 70k only in a year and he already had more than 100k in his account than that is not something phenomenal. So for students with smaller accounts probably you will make 500 dollars a month.
John — the main problem with Sykes’ trading system is that many of the stocks that one would trade with it are illiquid. Because of that someone like me with a large account is rarely able to put much of his money to use. My average daily exposure to Sykes-type stock plays is under $20,000. When you look at it that way, my returns looks very good, because I can use my money to trade in other manners too.
Someone with a smaller account should be able to enjoy much higher percentage gains because they can use a larger percentage of their account on relatively illiquid stocks. For example, I made a nice 12% return on a $17,000 short position on NVGN last week. I dared not have a much larger position because the stock is illiquid. For someone putting half of a $35k account to use in that play their account would’ve grown 6% in one week.
Michael- thanks for your explanation. I know you are Tim’s top students. I you can explain to me something i will be grateful. Let’s say i want to start with 100k following Tim strategies only and that i am new to the trading game but i have full time in the day to learn. If i ask you how much i can make you will answer that it depends. But if you just have to take a lucky guess what would be a yearly REASONABLE percentage of profits i can hope to make if i dedicate myself to this. I am not asking for best or worst case scenario but reasonable one. What do you think? It is ok if u give me just an estimate i will not quote you on that :). Just what is reasonable to HOPE for.
John, I really hate to give an estimate, but for a person who really learns the system, has the right temperament, and isn’t distracted by other things during the trading day, $50,000 would be reasonable. Of course, this also assumes that the system doesn’t stop working, that the trader doesn’t get wildly unlucky, etc.
Let us take me as an example: of my $70k in profit over the last year, my $20k in profit on SIL and my $17k profit on ALAN would not have been possible with a $100k trader unless he was too aggressive. So if we limit my position on SIL to $50k, the profit would’ve been $10k, and limiting the ALAN position to $20k would reduce the profit to $8k. So someone who had traded exactly like me over the last year but with $100k, never taking a position of more than $50k, would have made about $51k.
I think that I am at best a mediocre trader. I am highly profitable only because the systems I use are so good. So I think a good trader could easily beat that. On the other hand, lots of people who try to trade are poor traders, emotional, or do not invest the time to learn it, in which case the results would be much worse. A bad trader could easily lose money even if he traded a good system (like Sykes’ system).
I should add that a trader should never anticipate a certain profit level; trading is too unpredictable for that. So no one should plan to live off of the proceeds of trading unless they are very good and experienced. I don’t even live off the copious proceeds of my trading; my wife’s job pays for all our expenses and some of our saving. All my earnings go straight to savings. That takes a lot of pressure off me, and that really helps my trading, knowing that I don’t have to make money this week or this month to be able to live the life to which I am accustomed.
thank you for the article. but even though you changed your mind about tim’s system there is a very valid point that we can’t ignore: when everyone follow a system this system WILL stop working and in this case it is even more true because TIM’S system deals with illiquid stocks. So why do you think it is worth it to start learning this system now?
Patrick – one of the aspects of Tim’s system is that properly implemented, it will not arbitrage itself away. Because he doesn’t believe in shorting supernovae (such as VG recently, up from .50 to 2.00 in a few days) until they start to fall, his system will not eliminate its profit opportunities. The one thing that will suffer is availability of shortable shares. But I still see plenty of shorting opportunities available. And buying stocks on breakouts is also something that would not be arbitraged away. Look at HLCS today — it jumped from 1.80 to over 3.00 intra-day. This was simply a technical breakout above an important resistance level. With such breakouts, more people playing them means more liquidity and bigger moves. So it is not as simple as more traders meaning fewer opportunities.
Thanks Michael. But it is hard to make a living with this system with big accounts . My guess is once you go over 30,000 or so your % gains will start increasing. What do you think about my estimate. Do you agree? If not than after which amount do you think gains will start declining as a percentage of the initial capital?
Sorry what i meant to say after 30,000 your % gains will start decreasing not increasing.
Patrick – once you get over $8,000 or so your potential % returns drop significantly because a lot of true crap will never be shortable with more than a few thousand dollars. That is stuff like GFGU where Tim Sykes just made 40% on 1000 shares of GFGU in one day. That was only about a $400 or so profit.
But there are plenty of cases where the is a decent amount of liquidity. I have no problem throwing around $50k or so per trade a couple times a week on TimAlerts. In RTK or VG a trader could have easily had a $1,000,000 position and made over 10% on the trades.
So while % returns will degrade as account size gets larger, you can still generate meaningfully large returns. Over the last year I have made around $65k trading using Tim Sykes’ system (it is $85k since I first started in June 2008), which is over a 13% return on my $500k account (actually it has often been lower than that). And because the trades are generally small or very short-term I have virtually my entire account available to trade using other strategies (or invest long-term) and have the time to pursue other trading strategies. And my returns are far from ideal … I keep my position size small most of the time for psychological reasons, not for any substantive reason.
Anyway, I would say that it is hard to consistently use more than $50k trading Sykes-type plays, so a $200k account is more than adequate to generate large dollar profits. There are probably only a couple trades per month where a trader can use more than $100k comfortably in a Sykes-type stock trade.
BTW, I encourage you to visit my new trading blog, http://www.reapertrades.com