Pump and dump is the scheme used by stock manipulators, promoters, and even the companies themselves to make money on the stock. It is done only in the penny stocks market because the regulations are not too well regulated.
Promoters are paid in stock shares to promote the stocks in which they owned shares. Once they pumped the price to a desired level they sell all their shares, which is known as dump. That’s the bad part about the pump and dump scheme. Furthermore, its price starts diving toward its initial point.
But, when you really think about it we, too, can make money off of it. It won’t be easy but it can be done with the right discipline.
How to Trade Pump and Dump Stocks
Now this is where you have to be very careful. Penny stocks are already dangerous to trade; being pumped by promoters makes them even worse. If you are going to trade those stocks you will have to know at least one promoter that has been doing well with the picks.
How to Know a Good Promoter?
The history of the promoter’s picks is where you should look into. If the promoter has been given picks that are gaining with a little consistency you may give a shot, but it would be better to find one that has been more successful in his picks than losses.
Many traders trade the pump and dump stocks from rumors. It’s better to trade the confirmed pumps than those of the rumors because not all rumors actually turn to be in the pump and dump list. You may do your research on the stocks that are being rumored as pumps, but wait until you actually see them in the pump and dump list, then you can proceed with your transaction.
How to Buy a Pump and Dump stock?
First thing first, you will have to put in your order as soon as you see the pump. Oftentimes, those kinds of stocks take time to fill a transaction due to the high number of people buying. If you can be one of the earliest groups of people who are putting orders in that should help you get in at lowest price.
Promoters usually send emails out at 9:30 AM; some do at 2:00 PM. You will have to be waiting for them by your computer in order to make your move fast enough. Although you may have to put your orders in as soon or fast as you can, be careful on how you type the stock’s symbol. You may order a bunch of shares from a crappy stock if you mistakenly mistype the symbol.
Another aspect to keep in mind is ordering too many shares by mistake. This does happen because traders have to act so quickly in order to get in on time. This causes them to type more or less of the number of shares they wanted to buy.
Promoters promote penny stocks to make huge profit; we too can make a little profit from them by using good common sense, doing good research, and by acting fast. Until then, do yourself a favor, trade smart!