If you’re a penny stock trader like I am, you’re always looking to see if a stock is a pump before you trade it.
It’s just another way of practicing safety in the stock market.
Yes, you can trade penny stocks that are being pumped, but you have to know first whether or not they’re being pumped.
So many penny stock traders have this problem, or at least are always asking themselves this question. How do I spot the pump and dump stocks?
If you’re a beginner I’d not advise you to start up by trading pumps and dumps. I had a very bad experience with them as a beginner.
I wish I was as fortunate as you to have someone advising me not to trade them. But it was not the case, I had to experience it myself and learned from my mistake.
I’ve done an ample amount of research before invested, but I did not find any written post telling me not to start with pumps and dumps.
My friends were making money trading them, so I figured why not? I thought it was a very easy and straight forward process.
Even my friends thought the same thing, fortunately for them they were just pure luck.
From this post, I will share with you 5 key signs that I know on how to spot the penny stocks that are being pumped.
Hopefully, they can help you to improve yourself on how you do your day-trading.
First of all, what’s a pump and dump stock?
It’s a stock that’s being promoted by either shareholder or by the company itself. Sometimes they would even have paid promoters promoting them to increase their price.
Pump and dump schemes are illegal and are punishable by law. Furthermore, the schemers will be required to pay heavy SEC fines.
Why would they want to do this so-called “pump and dump?”
It’s pretty simple!
They promote the stock which they currently own some shares from. Once the price has increased to where they would want it, then they sell all the shares.
Those who buy when the price has reached its peak think that they will make profits, but that’s when the price plummets on them, losing them their money.
Promoting the stock is the pump, selling them once the price reaches a reasonable high is a dump. So they call this process “Pump and dump scheme.”
Some traders actually take advantage as those con artists are making their own profits. In order to do this, you’d have to know what you’re doing.
That’s why I’d not advise beginners to take this path.
So, how do we spot pump and dump stocks
- 1-Promise of big profits:
Anytime you’re being promised of big profits from a stock you should reconsider. It’s a big red flag because no one really knows when their big profits will come.
We can assume, but we cannot know really for sure of any stock’s outcome.
I do believe you’ve known that by now if you’ve been trading penny stock already, it’s not hard to see that.
- 2- Pump and dump stocks are penny stocks
You will never find a stock in a pump and dump list which is not a penny stock. All the pump and dump stocks are penny stocks. This should be your number one rule.
Penny stocks are the ones that are prone to those sorts of manipulations. Although it’s illegal and considered to be a crime. It still happens as of today, in order not to fall prey to them you have to conduct your own research.
Don’t rely on what you’re hearing, look for your own information. According to Penny Stock Expert, only a handful of stock traders stay true to themselves when it comes to researching before trading.
It’s almost impossible to be successful trading penny stocks if research is not being done.
- 3- Reverse takeover
Most of the penny stocks that undergo a reverse takeover are usually being pumped somewhere along the way.
What’s a reverse takeover? It’s also known as a merger, you may have heard of it being called “Reverse merger” before. It’s a method used by private companies to become publicly traded.
They get this done by acquiring just enough shares to control a publicly-traded company. And then those shares are used to exchange in the public company. Once this is done the private company has become a publicly traded one.
4- The flatliners
Some stocks are usually flat-lined on their graphing figure. They’re stationed at one place and never make any move. All of a sudden the price starts increasing out of nowhere.
Those stocks are the ones you should be careful with because prices don’t just start increasing for no reason. Especially for a stock that never shows any movement.
It’s considered to be a big red flag. Be very, very careful with them!
5- Trading surge
Seeing the share volume of a stock surges from 0 to over 1 million in one day should tell us something. Either they have some very good promoters out there, or they have a way to increase the volume themselves.
Don’t get fooled by them, their goal is to lose you money while they’re gaining money. They’re becoming rich at the expense of your hard-earned money.
Pump and dump scheme is involved with artificially inflating a stock’s price to make lots of profit in return. Although it’s well recognized by now, many traders are still being preyed on by those con-artists.
From this blog, I highlighted some of the most seen signs that would signal you that a stock is being pumped.
Knowing how to spot the pump and dump stocks can save you a lot.
I know that there are so many other signals to recognize a pump and dump stock that is not listed here. Please take this time to complete this list in the comment section.
Also, don’t forget to share this post with your pals on social media. It may be helpful to them too if it was helpful to you. Let’s help each other, sharing is caring!
As always, trade smart!