Hey everyone thanks for checking out this video my name is travis from master the market and i
wanted to make this quick video to talk a little bit about pump and dumps in the stock market
and more specifically pump and dumps in the penny stock market so first and foremost for
those of you who may not know a pump and dump is essentially when a group or when multiple groups
of traders whether that be through some kind of stock promotion alert service or even some
kind of trading chat room with you know thousands and thousands of traders in it if they all start
to come together and pretty much simultaneously buy into these stocks that's going to inevitably
push the stocks price higher because of all that increased demand and when the stock then starts
to run higher it's going to pop up on the radar of other traders through their screeners or even on
the top percent gainers for the day and that's of course going to bring even more demand from these
other traders that are now seeing the stock and eventually what's going to happen is the traders
that got into this stock first and the ones that initially started to pump the price of the stock
up higher are then going to sell to these people that are buying into the stock far too late
and they're going to lock in their profits while these people that are chasing up at the highs
end up taking a big loss once that demand starts to shift over to supply and the price gets dumped
back down to lower levels so anyway the reason that this is most commonly found in the penny
stock market is because penny stocks are much more easily manipulated mostly due to the lack of
volume so because we had a really good example of this over the past week with the stock symbol wei
i wanted to make this quick video to talk about a few things that you can look for in a stock
to hopefully help you determine whether or not that stock is in a pump and dump
and that way you can avoid buying into the stock at the highs
and taking a loss on the trade once the pumping is over and the stock starts to dump back down
so with that being said the first thing that you want to look for is volume
now naturally when a stock is spiking up whether it's a pump and dump or even if it's a valid move
in the market it's going to have a larger amount of volume than it typically does on any given day
however with that being said if you look at a stock's history and you see that for example maybe
the stock only trades about 10 or 20 000 shares on any given day but then pretty much out of nowhere
the stock starts to spike up and it's trading tens of millions of shares on one specific day
that is often a sign of a pump and dump because like i said these pump and dumps typically happen
in penny stocks that trade very thin volume on any regular day because those are the ones that are
going to be most easily manipulated and it's going to be easier for these pumpers to push the price
of that stock up in the first place so anyway if we take our example with wei that again spiked
pretty big over the past week and by pretty big i mean that it spiked from about 80 cents per share
all the way up to a high of 10 dollars and 20 cents including its extended hours trading and if
we go over here to the left side of the screen we have our daily chart and you can see that
on any given day before that spike actually happened if we hover over these different daily
candles and if you look at the volume on the upper right hand side of the chart you can see
that pretty much on any given day the stock trades you know 28 000 shares for example on this day
50 000 shares on this day we have a pretty big spike in volume on this day and it still
is only trading 81 000 shares however if we fast forward to the day of the pump
you can see we hover above that candlestick and on this day it traded 126 million shares
so obviously that's a huge spike in volume and that's a very abnormal spike in volume
which again is often signed of a pump in the stock market
and this actually pretty much goes hand in hand with the second thing that you want to look for
when you're trying to identify if a stock is currently in a pump and dump and that's going
to be the social media interaction so believe it or not social media interaction can actually be
a big factor in whether or not a stock is being pumped and the reason for that is because a lot
of new and inexperienced traders see that these big well-known traders are constantly mentioning
a single stock and because of that they take it as a recommendation to buy the stock and simply put
that's kind of how these stock pumps can actually start just from social media interaction so one
way to actually check in on the social interaction of a stock is to actually go over to stock twits
now personally i don't use stock twits and i highly recommend against taking any trading or
investing advice from stock twits because it does seem to be generally filled with pretty
inexperienced traders however with that being said you can use it to get an idea of how the social
media interaction is currently for any given stock so if we take our example again and search in wei
on the page for this specific stock what you can do is actually click on the message volume
and it's going to give you a chart of the volume of how many mentions of this stock were posted
here on stock twits over the past month or so and you can see that up until the time that it
was pumped there was pretty much zero messages posted in this board for the stock symbol wei
then once that pump and dump started you can see that very quickly the message is shot up from
about zero per day all the way up to almost 5000 messages in a single day and because the market is
moving on supply and demand a higher amount of demand is going to push the stock price higher
and vice versa a higher amount of supply is going to push the price of the stock lower
more often than not when you see such a huge spike in demand and a huge spike of interest
in this given stock inevitably there is going to be a breaking point and it's going to switch over
to the opposite side so that means that that demand is eventually going to switch to supply
and that's when the dump in the stock is going to start taking place okay so those
two things alone can be very helpful in hopefully helping you spot a pump and dump in the market
however the third and the last one is actually going to be probably the most important when it
comes to looking for a pump and dump and that's going to be some kind of news or press release
whether it be something like an earnings report you know if the company is running trials for
some kind of treatment or drug candidate that can be a great piece of news or catalyst maybe
they got some kind of patent or they're having some kind of collaboration with a bigger company
all of those things are valid pieces of news that can drive the price of the stock higher
however one thing that wei did not have when it comes to this big spike in the price of the stock
is a piece of news so if we go over to yahoo finance you can very quickly see if there's any
kind of news or press release being put out by the company that actually validates the move in
the market and in this case the most recent piece of news happened three days ago which in this case
was just after that pump actually took place and prior to that there was nothing for over a month
so with that being said obviously there was no piece of news or press release that actually led
to the price of the stock being pushed up so you can safely assume that it was pretty much pushed
up by the random spike in volume that took place once the pumpers actually started to
push the price of the stock higher and actually what happened in this case is this press release
that happened three days ago after the stock had already spiked up is the company put out a press
release basically saying that they have no idea why the stock is spiking up in the first place
and the reason that they decided to do that is because if the stock had continued to spike up
the way that it was eventually it's going to draw a lot of attention to the stock and it's
going to draw a lot of attention to that company and the sec is going to start questioning the
company to try to figure out why the stock is having such a significant price increase
and to avoid the sec from doing that the company put out this press release basically saying they
have no idea what's going on and they don't know why their stock price is skyrocketing
so that way the company can avoid questioning by the sec but essentially by doing so they're
pretty much confirming that this is just a pump and dump and from there the stock price although
it did get up to a high of 10 dollars and 20 cents throughout its run it did dump straight back down
and is now currently trading at about one dollar and eighty cents after being up at that high of
ten dollars and twenty cents so obviously anybody that was late to this party and bought into this
you know whether it be above five six seven eight nine even ten dollars they were dealing with large
losses once the stock did start to dump back down and that's really why i wanted to make this video
to hopefully help you get an idea of how you can spot these pump and dumps in the market and you
can be more prepared to trade them in the first place and with that being said you don't have
to necessarily completely avoid pump and dumps because they can be a great way to make money
in the market as long as you're early to that momentum and you're trading with proper strategies
and proper risk management there's no reason that you can't take advantage
of that momentum while it's still there with that being said you do want to make sure that you are
very cautious because when that momentum switches to the downside and the dumping starts to happen
it can be a very quick sell-off to the downside like we saw here in this example with wei
and actually in that case once the momentum does shift to the downside one of the ways that you can
actually take advantage of these pump and dumps and profit from them coming down is by short
selling them once that momentum does shift to the downside now as always short selling does come
with some additional risks and it's definitely not recommended for new traders um and if you don't
necessarily know much about short selling i do have a video on my channel explaining it in depth
and i'll go ahead and link that down below in the description but essentially the way that
that works is it allows you to borrow shares and sell them at a higher price so in this example if
we take wei you could actually sell these shares up at 10 and 20 cents if you happen to nail this
trade perfectly and then later on as the stock price falls back down let's say you bought back
those shares then at two dollars and twenty cents which means that on your short position
you would have made eight dollars per share because you still bought at two dollars and
twenty cents and sold at 10 and 20 cents but with short selling you're simply selling first
and then buying back later and again this can be a great way to actually take advantage of
these pump and dumps to profit from them coming back down as long as you are aware of the risk
and you are properly managing your risk along the way so anyway those three things alone can
hopefully help you determine whether or not a stock is in a pump and dump if you found this
video helpful please make sure to give it a like and subscribe to the channel so you don't miss out
on future videos and until the next one thanks for watching and good luck with your trading
you