How To Know When A Stock Is A Pump and Dump

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One of my favorite patterns is to short the first red day on a pump and dump. I want you to learn how to trade smarter. Remember, it’s said that around 90% of traders lose. That’s why I think it's so important to be fully transparent and show you every single trade I make. Here’s what a pump and dump is and how you can learn to spot them.

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FULL DESCRIPTION

One of my favorite patterns is to short the first red day on a pump and dump. So how do you spot this pattern? And what the heck is a pump and dump?

I want to you be a smart, self-sufficient trader. You gotta remember that about 90% of traders reportedly lose. That’s why transparency is so important to me and why I show every single trade — win or lose. I share how much I’m risking. And it’s not just one screenshot, one trade. I’m open about every single trade.

A pump and dump is when a company — or an insider, investor, or third party — pumps up the stock. They hype it to try to bump up the stock price so they can sell their shares or do a financing. They pump up the stock price, then dump the shares. That's a pump and dump.

And when these stocks are spiking, it can be a good time to short sell or bet against it.

So how do they pump the stock? It can be through a press release or a social media campaign. A lot of these companies invest money to promote their stock. Why? Because they want the stock price to go up.

Why is this useful? I'm just trading the price action and the technicals. This is how this game usually plays out. I’ve seen it a lot. I'm not even amused by it anymore, and I’ve learned how to profit from it.**

You have that first red day in the chart ... The whole goal is to get people to believe in the company and buy the stock. After five to seven days in a row of the stock being up and then the volume drops a little, there's not as much buying happening. That’s usually the first sign that the pump is over.

Let me give you one quick note here: If you're waiting for the first red day to short, often there are no shares to short. A lot of traders know about shorting the first red day now, so you kinda have to anticipate the first red day, which isn't as easy.

That said, three of my patterns — catching the bounce, dip buying, and the long kiss goodnight — are all covered in my Pennystocking Framework course.