Pump and Dumps

     This strategy that I used in these trades is a bit different than the other types of stocks that I traded and explained in my other blog post. In these cases I used the very simple pump and dump strategy that is commonly used in the world of penny stocks

What is a Pump and Dump? A pump and dump is a penny stock pattern that can be used for have a successful trading strategy by shorting selling exponentially large moves over a couple of days. These extremely volatile penny stock get pumped or promoted or manipulated to soars hundreds or percents in a few days. The only this is that these stocks move on "Fluff" news and once everyone begins to realize this the stocks will crash 10-50% in a day or two. Being able to spot these pumps and short them at the right time can be very profitable for you account.

One of the Pumps in question is the stock GENE. This stock made an exponential run up from $1.50 to $11 in a week! This large run up was not from good fundamental news, but it was a pure pump from a penny stock promoter called Ironside. Ironside for the last week had been sending out mailers to thousands of people and manipulating the price of the stock. The best thing to do with these pumps is to wait for the top because even if you think a move from $1.50 to $5 is a lot and i must come back down, in a couple of days it got short squeezed and ran to $11. To avoid running into a problem like this look for topping signals such as, fading volume, dojis, and the stock going red on the day. These three things usually mean top. But not all the time so it is important to look for these signs and if things don't go your way right away keep taking small losses until the big collapse happens. Trust me if you time it right and you just kept getting in when topping signals occurred and got out when it fail, eventually it will top out, it WILL ALWAYS TOP OUT EVENTUALLY. When this happens i promise you will make back all your losses and then some as these things easily tank 30% in a few days. GENE for example once i finally got the move made me a 33% profit in one day . As i noticed a long legged doji at the top with faded volume I slightly jumped the gun and did not wait for it to go red on the day as I held over night anticipating a gap down morning panic. This did not occur as the stock got one last squeeze in and I tried to follow my rules by covering losses quickly and look for better re-entry. My position was delayed 15 minutes which caused me to get out for a $1.50 a share loss. This unfortunate situation obviously really hurt my account but I remain focused on trying to re short it as I did twice. First I made $.50 a share and than i made about $2.50 a share in one day. These large gains made me back all the money I had initially lost. Perhaps i would have made more but I was a bit shell shock from the first loss so I took a position smaller than I should have as I was very certain of the collapse.

     This is what happens to this pattern a month after its run it goes all the way back down to where it started. This shows my point as two keep shorting and cutting losses because eventual the large collapses happens and you will make a huge profit. It is important to cut losses however because here it looked like it was topping at $4 but then it ran all the way to $12.50.