Lessons From A Penny Pro

How to Find Trading Opportunities in Pump and Dumps

While many market participants today will be watching what Jerome Powell of the Fed says…

I won’t.

Instead, I’ll be sifting through press releases and stock charts.

You see, I’m an expert at trading penny stocks. And to be an expert at penny stocks you must know the law of the land.

It’s the wild wild west out here.

With no real analysts or financial media covering penny stocks… “Pumps” are often the key driver that moves them.

What are pumps and how can we profit from them?

How to Find Trading Opportunities in Pump and Dumps

You’ve probably heard the term pump and dump before… and it typically happens with penny stocks.

Basically, with pump and dumps… the company or a group of traders announce a press release, sending the stock higher… only for traders to sell those shares and push the price back down.

Now, we’re only focused on company press releases here because it can actually uncover trading opportunities for us.

You see, company press releases that send penny stocks soaring actually happen with OTC stocks a lot.

OTC stocks don’t need to provide a lot of financial information like stocks listed on NYSE or Nasdaq… rather, they announce press releases – information about milestones, new products, etc.

Why do OTC stocks use press releases?

Well, it gets investors and traders excited about the stock.

You see, these stocks don’t get a lot of love from Wall Street, and analysts can’t cover them. So when they want to get people talking about their stock… the easiest way to do that is release information about the company.

For example, during the Bitcoin craze about a year and a half ago… we saw a lot of press releases about blockchain. There were companies beaten down companies (companies not even in the blockchain business) that no one was really talking about them.

So what did some of them do?

They announced they were pivoting to blockchain.

For example, we saw companies like Long Island Iced Tea announce it was changing its name to Long Blockchain Corp. This press release got people talking about the company and attracted investors and traders, causing shares to run by 200%.

Now, this might sound a bit complex at first… but all you really need to know is that there are a lot of opportunities with OTC stocks that conduct press releases.

The one way is to take advantage of trends.

How?

Well, typically, there is a pattern with OTC stocks releasing news. For example, when Bitcoin stocks are moving… you could expect that one of them may release some company-specific news. When pot stocks are hot, some may announce new milestones.

However, with this type of trade… you shouldn’t overstay your welcome because they end up dumping after.

Why?

Ever heard the term, Buy the rumor, sell the news?

Well, traders use that press release, followed by the subsequent move higher to sell their shares.

For example, take a look at the chart in Long Island Iced Tea (now known as Long Blockchain Corp.) after it announced it was pivoting to blockchain.

The stock dropped more than 50% from its high after that press release.

Now, this actually uncovers two trades for usthe squeeze higher, followed by the dump.

Two Opportunities With Pump and Dumps

Take note, we’re just using Bitcoin as an example here since it’s been in the news lately… but this happens with a lot of penny stocks.

For example, there was another recent runup in Bitcoin… which caused blockchain- and crypto-related stocks to skyrocket.

Now, when you see an entire sector on the move… it could be a sign that there will be press releases coming… in order to get traders to continue talking about these stocks to fuel the fire… that’s when you want to keep these stocks on a watchlist.

For example, MoneyGram (MGI) – although not an OTC stock – is a cryptocurrency-related stock.

This stock was beaten down… and was trading right around support. This is actually known as my consolidation pattern, where I look for a big drop in the stock… followed by a period of consolidation (the stock trades in range).

Typically, with that pattern, we see the stock run higher once it breaks out of the consolidation.

Now, if you knew this pattern and saw it… you could’ve bought shares with a tight stop.

Well, with Bitcoin running, this stock was prime for a press release. Now, I didn’t trade this stock… but if Bitcoin stocks start moving again, this will be on my radar.

Blockchain startup Ripple actually announced it purchased a stake and entered into a partnership with MGI – noting it invested $30M.

 

 

Now, the stock had a market cap of around $90M before the release… so if you think about it… that investment was around 30% of the market value and it should mean the should move by around 30%, maybe a little more.

However, the stock more than doubled.

 

 

Now, you could’ve actually spotted this trade ahead of time… but if you missed out, there’s actually another opportunity: the dump.

Keep in mind, I don’t really like to short penny stocks… but there are a lot of traders who do after the pump. For example, you could’ve actually taken the “dump” trade and looked for a move lower in MGI… realizing a $30M investment shouldn’t justify a 200%+ move in MGI.

Well, here’s how that trade would’ve turned out.

Remember, pump and dumps don’t only happen with Bitcoin stocks… we actually see this action all the time in penny stocks.

A stock gets beaten down and everyone forgets about it… the company wants people talking about their stock again and announces a press release… causing the stock to run higher.

Thereafter, momentum buyers bid the stock up… and those who were long end up selling their shares – increasing the supply in the stock… causing it to dump.

Now, with pump and dumps… it’s all about spotting the pattern and understanding how to dissect the information.

If you want to learn more about how you can find opportunities trading penny stocks, then click here to get started.

Lastly, the $3K to $100K Small Account Challenge is underway and I want you to trade with me. I make trading simple and easy to follow along.

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