How To Spot A Stock Pump And Dump Scam

As I have said in a previous article on stock pump and dump, legitimately promoting stocks is accepted, ethical, and if done right, profitable for everyone – investors and owners alike.

However, an evil cousin of legitimate promoting is a stock pump and dump.

Designed to be little more than a short-term artificial boost to the share price of a stock, stock pump and dump generally last only as long as it takes for those who financed the pump to sell their shares on their unsuspecting fellow investors.

10 ways to tell the difference between a legitimate promotion of a stock and a stock pump and dump …

1) Looking at the source of the stock promotion. Legitimate promoters always show their true identity whereas a stock pumper does not because he doesn’t want to be caught. If you’re reading the articles or updates from a nameless author – chances are, it’s a sleazy stock pumper.

2) If the updates and notices on the stock contains as many “potential” facts as hard facts about the company – chances are high, it’s a stock pump.

3) If the stock touted as hot stock is a small capitalized stock or penny stock – chances are, it’s a stock being pumped again.

4) It’s often the case, if a stock promoted have poor financials, and the books show they have little cash, low net worth and bleeding (carrying large losses) – chances are high, it’s a pumping scam.

5) If you’re being promised hundreds to thousands of percent gains on the stock if you invest in the stock, – or better yet, you are asked to double down when the stock drop – high chances are, it’s a stock pumping scam.

6) If the stock (out of the blue!) become the subject of promotions via articles, e-mails and internet sites touting it as a “strong buy” that “could make a fortune” for early investors – chances are, it’s a stock pump.

7) If the company issued press releases after press releases announcing new projects and new deals generously sprinkled with hype words like “huge”, “immense” and “superior” – chances are, someone is looking to pump the shares.

8) Tiny, never-before-heard-from companies making enormous claims; they tout new breakthrough technology products they say will, for example, earn them hundred of millions or cure an illness – chances are, the people inside are looking to pump the shares.

9) If someone announce he is purchasing a large portion of the company’s stock at a purchase price way above the net worth of the company – chances are high, the people are involved in a stock pump.

10) It’s just not normal for daily trading volume in a stock to go from zero one day to hundreds of thousands or even millions the next day – high chances are, it’s a stock pump. It’s often a RED FLAG as the stock pumpers are trading among themselves and setting aggressive price movements to create the appearance of substance and great things about the stock.

Conclusion

You may has seen a stock pump and dump underway the last couple of months in the local stock market for any number of small and mid cap companies. The whole reason behind a stock pump and dump is for the stock pumpers to profit.

Many unsuspecting stock investors have fallen prey to the stock pump and dump scams and lost money. And unfortunately, it is getting more difficult to spot a stock pump and dump from a legitimate promotion as the stock pumpers gets more sophisticated and cleverer over time.

The only way to avoid all these misfortunes is by learning to become a smarter and wiser stock investor. In this way, you will know how to avoid scams such as the stock pump and dump in the stock market.