How to Find Pump and Dump Stocks

How to Find Pump and Dump Stocks

Many factors can propel a company’s stock price up or down. When the market feels like sentiment is too high, without any solid reasons supporting it, it’s referred to as “pump-and-dumb” stocks.

Companies being heavily promoted are often told about these pumps in advance to protect themselves from the inevitable crash.

What are the best ways to find pump and dump stocks?

  • Google searches based on specific search terms.
  • Penny stock newsletters (many of them are just laden with promotion!)
  • Trailing stop losses (if you’re trading with a significant amount of capital, the system automatically sets stop losses for you)
  • Going through news websites (some companies explicitly tell investors in their filings that they’re moving shares to their newsletters or other promotional sites, so you can usually find out even before the SEC does)
  • Using various stock screener tools
  • Reading company filings.

Watching the stock ticker

There is always something happening on the different stock exchanges. If you are monitoring, for example, NASDAQ in real time over the past few years, you would have seen that in 2013 there was a lot of activity in stocks like Ophthotech (OPHT) and ImmunoCellular (IMUC).

These two stocks were involved in pump and dump schemes that drove up their share prices significantly. If you understood these manipulations early enough, you could have made some money selling these stocks at their peak.

Using advanced charting techniques

Another way of finding pump and dump stock is to look at the chart of the stock itself. The most common way to do this is through candlesticks; you need to try and figure out whether the stock price increased over a short time or decreased.

It can be challenging to do this on stocks like optionable stocks, but it will be much easier if you have access to an option pricing tool.

Trading watch lists

Last but not least, watch lists are also a great way of finding pump and dump stocks. Watchlists are generated by professionals who follow companies closely and try to understand what they’re doing in terms of their stock price manipulation schemes.

These are free for anyone to use, and you can view them online. The most popular watch list is probably one created by investor Paul Merriman called The Big Money Pits.

Pump and dump stocks are often used for short-term profits without any significant purpose other than that. Many companies manipulated into this sort of scheme perform poorly and inflict severe damage on the general economy by artificially propelling their share prices higher.

Pumps are created by selling shares to generate share prices, while dumps are performed by selling shares to decrease these values intentionally. These tactics have been used for several decades now. They have led to tons of controversy surrounding them.

Many claim they are unethical because they lead to losses for other investors who do not understand this practice and big corporations like banks pumping up their stock holdings, for instance.

Did you know?

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