Watch our video on how to trade pump and dump penny stocks.
In this post we are going to talk about pump and dump penny stocks. People love penny stocks because as the name suggests they’re cheap stocks and you can buy a lot of them. Penny stocks are usually stocks under $1 but can be up to $5.
Penny stocks usually trade outside of the major market stock exchanges. As a result, they’re known as OTC (over the counter) or pink slip stocks. Penny stocks can be highly volatile and can be contingent to manipulation.
Investors can find that the ability for a quick profit is attractive to them. Traders who are starting out and don’t have a lot of money can see it as a way to grow their account quickly without having to put up a lot of capital.
The definition of pump and dump from Investopedia is the illegal act of an investor or group of investors promoting a stock they hold and selling once the stock price has risen following the surge in interest as a result of the endorsement.
When trading penny stocks don’t get caught up in the hype of the story these small companies are telling you. It always seems like they are about to revolutionize their field. Although this may be true it's the hype that gets people to invest.
In fact, stock promoters or pumpers will buy a big position in a penny stock and proceed to pump and dump penny stocks. You’ll see phrases not only like “this stock is going to the moon” but also “it’s the next big thing”.
Or an investor claiming they have inside information from someone high up in the company. The information they’ve been told is going to send this stock through the roof (check out our stock market training page).
No pump and dump is the same but there’s one basic principle that never changes. The supply and demand and shifting it to benefit the pump and dumper. An investor will buy a large position in a pump and dump penny stocks company and need to drive the price higher (check out our day trading for beginners page).
They can do that through newsletters, chat rooms, websites and messages boards. This drives up the interest in the stock and it’s so exciting you want to get in before the price skyrockets.
There will be a huge spike in price which brings in the volume because people will see the move and believe the hype. This shifts the supply and demand to the pumpers favor.
They have the supply in their big position and there’s a demand for it. So they sell for a profit. There usually isn’t a lot of volume on these stocks until there’s a pump and dump happening (check out our trading penny stocks page).
Have you ever heard the saying “if it’s too good to be true it probably is”? Keep that in mind when you’re trading pump and dump penny stocks or any stock for that matter. If someone you don’t know keeps telling you how great this cheap stock is, you need to get in now because it’s going to the moon, be cautious (how does shorting a stock work? It's a great way to make money trading penny's, so learn how).
Just like with anything you need to do your due diligence. If someone is so willing to give you this awesome information, consider why. Check out the fundamentals.
Look up the company, find out what the news is, look at the charts. Moreover look to see if there is a history of pump and dumping. Pump and dump penny stocks will show those patterns in the charts.
Take our courses to learn more about technical analysis basics, how to read charts find patterns and pump and dumps.
Reading this post about pump and dump penny stocks might scare you away from trading these but you don’t have to be scared. There’s profits to be made as long as you are fully aware of the strategies you can use to trade them.
These are usually stocks you don’t want to hold for long periods of time. Day trading these are probably the best way not to be stuck holding the bag. Take our day trading course if you want to learn more.
There are people who have made millions trading pump and dump penny stocks. It can definitely be done. Just make sure you’re not left holding the bag.
A bag holder is someone who got in on the hype and is left holding losing shares.
When you trade pump and dump penny stocks knowing technical analysis, how to read charts and doing your proper research will go a long way. Take our courses to help you on your journey of trading smart and building your brokerage account.
DAY TRADING SOFTWARE FOR BEGINNERS
HOW TO BE A SUCCESSFUL DAY TRADER
DAY TRADING SECRETS AND WHAT TO LOOK FOR WHEN DAY TRADING
PENNY STOCK RESEARCH AND HOW TO MAKE SURE YOU PICK WINNERS
HOW TO READ TRADING CHARTS WITH SUCCESS
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