Yesterday was a good day for AgEagle Aerial Systems Inc. (NYSE: UAVS).
From the time I saw it start to run premarket to the time it reached its high for the day, the stock gained about 93%*.
But I knew there was something fishy about the initial move, and I discussed it with my Premarket Prep audience yesterday morning.
It turns out this UAVS was reacting to a chat room promotion, or what I call a chat pump.
I use this term all the time in my Premarket Prep, StocksToTrade Advisory videos, and my free daily webinars.
My most important piece of advice for trading chat pump stocks is to get in and get out quickly, especially in an illiquid environment like premarket. Never overstay your welcome with chat pumps, or you’ll get burned.
That said, UAVS was tradeable yesterday in a way that involved much less risk…
It ended up on the Oracle scan, and the resistance lines provided by the tool would have guided you into the right entry point with a stop-loss to manage your downside.
If you’re not familiar with Oracle, the tool I use every single day, you should be! Read more about it in my recent blog post.
And if you’d like to see Oracle in action, we offer live demos every day. They’re completely free and run all day long.
Click here, drop your info, and join a session.
Trading with Oracle and the data it provides prevents you from getting burned by a chat pump.
Let’s talk about other ways to avoid disaster with these tempting big movers…
Maybe you’ve seen some wild stock swings, and wondered, “What’s really going on here?” So here’s a breakdown of how stock promotions work, particularly chat pumps, why they’re so risky, and what you need to know to protect yourself in the markets.
Table of Contents
What is a Chat Pump?
At its core, a chat pump is a classic manipulation tactic, designed to artificially inflate a stock’s price (“the pump”) so that insiders can sell their shares at a profit before the stock inevitably crashes back down (“the dump”).
The target? Usually small-cap, low-volume stocks—often companies nobody’s heard of, aka, the stocks that we day trade. These stocks are easy targets because they’re thinly traded, so any spike in volume and attention can send the price soaring quickly.
How a Pump and Dump Plays Out
Promotion and Hype:
It all starts with a promotional blitz…
In the old days, this was a glossy mailer or, yes, even a fax.
Today, it’s emails, flashy social media posts or chat posts, or sometimes even fake “news” articles. These promotions pump the stock up with exaggerated claims about new products, breakthrough technology, or huge upcoming profits.
The goal is to create a buying frenzy among unsuspecting retail investors.
The Price Surge:
As more people buy in, the stock price starts climbing…
And here’s where it gets dangerous: when you see a stock skyrocket quickly on a wave of hype, that price move can look like “momentum.” People think they’re getting in early on something big and real.
But what they don’t know is that the someone, whether it be insiders, or the company itself, or someone unrelated to the company, are getting ready to dump their shares into this artificial demand.
Now if these are insiders pumping and dumping the stock, that’s illegal.
It’s also fraud when a company is saying one thing publicly, but the CEO is secretly doing something else—like unloading shares without disclosing it.
And if someone promotes the stock while secretly selling off their shares into that promotion, known as scalping, that’s illegal too.
But keep in mind, not all pumps are illegal.
Short sellers are very motivated to promote a stock if they know they can sell their shares when it’s artificially inflated. And after the demand dries up and the stock fades, they can buy them back for a profit.
Yes, it may be underhanded and unethical, but it’s not illegal.
The Dump:
Now that the price is up big, the people who started the pump start cashing out.
They unload their shares onto the unsuspecting buyers who were drawn in by the hype. With so many shares being sold into a thinly-traded market, the stock price plummets.
Retail traders who bought in are now holding shares at a fraction of the price they paid, and worse, they may not be able to find anyone to buy their shares at this point. They become bag holders.
Why Chat Pumps Can Be so Irresistible
Chat pumps play on human nature and FOMO. When people see a stock doubling or tripling in a short time, it’s tempting to jump in.
And sure, some traders are savvy enough to ride the pump and bail out before the dump, but that’s a high-risk game to play.
That’s why, as I said above, I always advise traders to get in and out of chat pumps fast, especially if it’s premarket.
And don’t do it if you’re a new trader.
How to Spot a Pump and Dump
Beware of Over-the-Top Promotions:
If you’re getting promotional emails or seeing ads hyping a small, unknown stock, be wary. Real opportunities don’t come with this kind of heavy promotion.
Unusual Price and Volume Spikes:
Watch for low-volume stocks that suddenly spike in both price and trading volume without any legitimate news.
Research the Company:
Many pump-and-dump targets are shell companies with little real business behind them. Do a bit of digging. Look at the fundamentals and the business model and make sure the company is the real deal.
One of the best tools you can have on hand to avoid being taken in by a chat pump is our Breaking News Chat service.
Breaking News Chat is a legitimate financial news chatroom led by veteran Wall Street traders, each with over 20 years of experience. They filter out all the noise and give you only the information you need.
My blog post highlights some of the big price action BNC has nailed before the rest of the market had a clue.
Get only the news you can use with Breaking News Chat!
My Final Thoughts…
Pump and dumps are still around because they work—at least for the people behind the curtain. But for the average trader, they’re a trap.
If you see a stock that seems to be going up on hype alone, think twice before jumping in.
Pump and dumps rely on emotions to work—especially FOMO. Stay disciplined, do your research, and make sure you’re trading with a clear, rational plan.
Always remember that slow and steady wins the race in trading.
And if you want more trading advice as well as my stock ideas, subscribe to my StocksToTrade Advisory service.
Every STT Advisory subscriber gets a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
The market is insane with post-election plays! I’ve been shouting this from the rooftops since last Election Day…
But there’s something else that happened…
November 5th triggered the biggest trading catalyst of the decade. Election Day opened a three-month window for a certain group of stocks to surge in epic fashion.
We’ve found that in the past, around 1,500 stocks have returned on average 3,700% within 90 days of the election.
On November 20th at 8 pm Eastern, I’m hosting The 2024 Election Alpha Surge Summit.
I’m going to dive deep into this post-election catalyst, its history, and how our AI bot is locked and loaded to capitalize on this massive opportunity.
Plus, I’m going to share the five stocks our AI system has already picked.
But you have to reserve a seat now!