Most penny stocks are over the counter, which means that these stocks are far less regulated by officials and are prone to market manipulation by people with more money than you will ever have. With less regulations and cheap prices, penny stocks can be falsely advertised to generate a pump and dump, which will raise the price temporarily only to bring the price back down. This pump and dump scams have left numerous clueless investors penniless. You might have heard of it or may have even been a victim of it. Penny stocks also don’t pay dividends and is also highly volatile, which is another reason why experts advise you to stay away.
But here’s my cents on pump and dump and penny stocks. The whole freaking stock markets are pump and dump and a scam. You just got to play the game and win it. If you want to practice on being good at playing the game, start with penny stocks and move up.
Now, let’s talk about why I think you should stay near penny stocks. First, you can make quick short term gain. Second, it’s possible to spot this before it happens. Just spot the pump before it happens and ride the bull all the way to the dump to make profits. Of course it’s easier said then done and most of the time it’s a gamble. But it’s a gamble most people take if the reward is high enough. Most of the time, novice traders are caught at the peak of the pump, just to see their hard earned money disappear as the rich people in charge take away everything in matter of seconds.
One thing you should remember is the accumulation and distribution patterns. When taking a position, big institutional investors don’t have the luxury of entering and exiting a position on the same day, but you do. When the giant players with lot of money prepare an accumulation phase of stocks, whether it’s a fundamentally good stock or just a pump-and-dump scheme, they go through an accumulation phase where they start buying small number of shares to avoid spiking the price too high and alerting people of the activity going on. They have been getting crafty lately where they buy bunch of them at once to alert people, so they can jump in as well, but sell it back the next day to lower the price again. Using tactics like this will create fear in the market, making investors confused at times. They use different tactics to ensure they get a lot of shares before they want people to jump in when the price is at its highest.
The pump and dump scam is illegal, however, it’s very hard to prove because these people know what they are doing. They not only pump and dump but manipulate the media to ensure there are news that matches their tactics beforehand. These people can easily make over 10 million dollars in one pump and dump scam easily.
Now let’s talk about where you can find these penny stocks. Most of the penny stocks that are looking to be pumped and dumped are new companies or companies that are developing new products. In 2017, marijuana, drugs, biotech, pharmaceutical, and artificial intelligence have been the hot stocks for pump and dump. These are good for pump and dump because it’s hard to calculate the revenue for companies that are developing something that hasn’t been on the market before. It will also look less suspicious, since the stocks are fresh off the market.