Don’t Trade the Pump!

Today, I want to dive into a phenomenon that’s been making waves in the trading community for a while now: chat pumps. 

So what is a chat pump?

Chat pumps are a form of market manipulation where a group of traders in a chat room or other type of forum work together to drive up the price of a stock, usually a penny stock. 

They hype up the stock and then herd mentality takes over, which creates a buying frenzy. 

As more traders buy in, the stock price surges, allowing the initial promoters to sell at a higher price. Once they exit, the price typically plummets.

Chat pumps are rarely, if ever, based on real news.

9 out of 10 chat pumps fail. Remember that! 

In my Premarket Prep and other daily webinars, when I go over stocks to be on the lookout for, sometimes there will be chat pump stocks…

And when I see them, I’ll advise my audience on how to react to them…

My one constant with these things is this: “Never blindly follow a chat pump.”

If I see a potential opportunity, I’ll tell you what to wait for after the pump has happened.

To get access to all that great advice…on chat pump stocks, on penny stock trading, on my top watchlist stocks for the day, and more, you need to subscribe to my Daily Income Trader service.

As a subscriber, you get access to four live webinars, including my Premarket Prep and Daily Double Down, our proprietary algorithmic Oracle tool, my Weekly Squeeze Report, and much more.

Click here to learn more about Daily Income Trader. 

The anatomy of a chat pump:

Identification and Coordination: It starts with finding a low-float stock, usually one with little to no substantial news or fundamentals to support a price rise. The promoters then coordinate their efforts to begin the pump.

Hype and Spread: Using chat rooms, social media, and forums, they spread hype about the stock. You might see phrases like “This is the next big thing!” or “Get in now before it skyrockets!”

Buying Frenzy: As unsuspecting traders jump in, the stock price rises. This attracts more attention and more buyers, increasing the momentum and driving the price even higher.

Dump Phase: The promoters sell their shares at the peak of the frenzy. Once they unload their positions, the stock price collapses, often as quickly as it spiked.

 Yesterday morning during my Premarket Prep, I talked about MDJM Ltd. (NASDAQ: MDJH). 

This is the poster child of a premarket chat pump stock. 

There was no news on the company and this kind of pump and dump has happened before with MDJH. It’s what I call a “China Scam” stock.

I basically said to my subscribers, “Don’t trade the pump. Wait for the shorts to pile in for a potential squeeze.”

And I’m glad I gave my good counsel because here’s where the stock was after the morning open through noon.

Blech! Anyone who traded the pump ended up as a bag holder. Don’t be a bag holder!

But sometimes, chat pumps do work out, after the pump is over.

In fact, yesterday, I mentioned another chat pump name during my Premarket Prep.

Though definitely not as spectacular as MDJH, Bionomics Ltd. ADR (NASDAQ: BNOX) had its own chat pump that started premarket and peaked just after the open.

This one was promoted by a regular chat pump fraudster, H.C. Wainright, with no real news to support it.

I wrote in my Premarket Prep notes: “H.C. Wainright pump; Shorts love these. You’ll get some panic on the red to green.” 

If you aren’t familiar with the red-to-green pattern, it always happens with short squeezes.

Read my recent blog post on the red-to-green pattern here.

And for those who waited for the red-to-green panic…

Their patience was rewarded!

The short squeeze caused the stock to run up over 11% in mere minutes.

How to protect yourself from chat pumps:

Besides subscribing to my Daily Income Trader service where I alert all my subscribers to chat pumps, you should:

Be Wary of Over-Hyped Stocks: If a stock is being hyped up in multiple chat rooms and social media platforms without substantial news, it’s a red flag.

Set Stop Losses: If you do mistakenly get taken in by a chat pump, protect your capital by setting stop losses. This way, you’ll limit your downside when the stock tumbles.

Avoid Chasing: If you see a stock already up significantly within a short period, resist the urge to chase it. The higher it goes, the riskier it becomes.

Do Your Own Research: Always do your due diligence before jumping into a trade. Look for legitimate news, financial reports, and other credible sources of information about the stock.

However, reading every single financial news source each morning can be a tedious undertaking. 

Here at StockstoTrade, we have a tool that does the heavy lifting for you. 

Breaking News Chat alerts you to news and other company and industry announcements many times before anyone else sees it.   

It’s no ordinary chat room because it’s led by Wall Street veterans, each with over 20+ years of experience. 

Check out Breaking News Chat here.

Have a weekend, everyone. See you back here on Monday.

Tim Bohen

Lead Trainer, StocksToTrade

 

P.S. 

Earnings season is upon us, so learning how to interpret and trade on that information is more important now than ever. 

Lucky for you, my friend and veteran trader Ben Sturgill has been working on an algorithm that he uses to predict earnings winners. . . He’s been testing it for the last 18 months and the success rate is pretty incredible.

Find out how you can master the market during earnings season!