Have you heard of the pump and dump stocks?
It would be rare not to hear someone in your stock trading circle talking about pump-and-dump stocks.
Because it’s a very popular subject in the stock market.
In fact, every day you’re being bombarded with emails asking you to buy a stock that’s going to double in price.
Or urging you to buy a certain stock as it will turn you into a rich person in the next few minutes.
If you hadn’t fallen victim to their game yet, don’t let that ever happen to you.
Or if you have no idea of what the pump-and-dump stocks are all about, you’re in the right place.
Keep reading as I will share with you everything you need to know about a pump-and-dump stock.
What’s a pump-and-dump stock?
A pump-and-dump stock is one that’s being promoted although there’s no actual truth about the advertisement.
It’s a deceptive tactic used to artificially inflate the price of a stock or investment using fictitious recommendations.
Then, why would someone do that in the first place?
This is a very good question.
In a pump-and-dump plan, the culprits have already held some positions in the company’s stock, and they will sell it once the hype has driven up the share price.
That’s their primary goal for a pump-and-dump, to make profits off of those who don’t know about the scheme.
A successfully pumped stock will always have a very high volume of trading, and it’s unfortunate that most of the investors would lose their money.
Is the pump-and-dump method legal?
It’s an attempt to commit a fraudulent crime that is illegal in the USA. According to the Criminal Lawyer Group, it is a criminal offense that’s punishable by prison times as well as high monetary fines.
Although pumping a stock to dump it later is an illegal tactic with serious consequences that doesn’t stop scammers from doing it.
That’s why it’s up to you to do all you can do to not fall victim to them.
Because they’re out there and they’re working days and nights trying to scam hard-working people.
How to avoid the pump-and-dump scheme
In order to avoid them, you’ll first need to know how to spot them.
It can be obvious to see a stock that’s being pumped if you know about the scheme.
However, it’s not always the case.
Anytime you receive an advertisement about a stock that will double or triple in price should make you think.
No one knows when a stock is going to make significant gains, we may have signals about an upward trend but we can’t tell how much it’s going to make.
When it sounds like it’s too good to be true, then it’s too good to be true.
Listen to your subconscious self, it’s your best friend sometimes.
Can I trade pump-and-dump stocks?
In the same way, scammers can make profits off of the scheme, regular investors like you can profit as well.
Consequently, it’s a dangerous game to play as you’re still exposing yourself to the possibility of losing your funds.
Many stock investors utilize this to their advantage, but they stay ready for the adverse outcome.
with that being said, it’s possible to profit from the pump-and-dump scheme, but you have to be lucid and monitoring the movement until you cash out.
Do regular investors make profits from pump-and-dump stocks?
You’ll be surprised to see how much you can potentially make trading through this scheme.
Some people trade them short, and some people prefer to trade them long.
It’s called “Short-trading or long-trading.”
Nonetheless, in order to do short-trade you’ll need to have a margin account.
I’ll give you more information about margin accounts in a future post, but it’s an account that basically allows you to borrow money from your brokerage.
If you don’t have this account, it’s impossible for you to trade short.
Examples of investors who made lots of money trading pumped stocks
There are many penny stock traders who become millionaires and some of the methods through which they accomplished that is by trading pump and dump stocks.
1- Tim Sykes
For example, Tim sykes, a self-made millionaire at a young age had done it by trading penny stocks and he did earn some of his profits from pump and dumps.
“Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money.”
2- Tim Grittani
He is a former student of Sykes, he was still a college student when he stumbled upon Sykes information online.
The rest is history…
After losing thousands initially, he realized it was time to develop a strategy to make consistent profits. Grittani made his first million focusing on momentum OTC stocks & pumps and dumps.
He made easy money short-selling over-hyped stocks pumped by stock promoters.
As of today, scammers are still using this scheme, pump-and-dump to make money.
Although it’s an illegal method, they still find ways to use it.
Nonetheless, we regular penny stock traders can use this to our advantage to make money as well.
It’s crucial that you know how to use the pump stocks in order to make money from them as the outcome can sometimes be very painful.
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Good luck trading!