Remember from Monday how Nvidia Corp (NASDAQ: NVDA) and all the other big AI chip manufacturers took a tumble after DeepSeek released their free AI platform?
If you’re not familiar, here’s my recent blog post about the whole thing.
And as I predicted, NVDA has already slowly but surely started to recover…
NVDA 5-Day, 5-Minute Candles Chart; SteadyTrade
Remember, with stocks this size, you won’t see a dramatic upswing as they make their way back.
This is a swing trade type of stock and the recovery will be a slow grind over several days or a few weeks.
But as I said the other day, this is your opportunity to get into beaten-down AI stocks like NVDA at a great price.
By the way, I have a full AI watchlist that includes the big players like NVDA and AMD along with smaller, day-tradable names.
If you want access, subscribe to my StocksToTrade Advisory service today.
Every member also 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!
I’m bringing up the DeepSeek news again today because, as I mentioned during my Premarket Prep session yesterday, I’m seeing a not-so-strange coincidence.
Hear me out…
The company happens to drop a press release on Sunday night…
On Monday, everybody panics about the true value of NVDA, and the stock sinks on the news…
And let me point out, in case you didn’t know, Liang Wenfeng is the founder of High-Flyer, the Chinese hedge fund that released the DeepSeek product.
This guy’s no dummy. He’s a sophisticated quant investor.
Do you see where I’m going here?
A ton of money was made on NVDA puts that were bought on Monday.
That’s all I’m saying about that…
This “situation” reminds me of so many other tricks and scams out there in the trading world that can trip up new and seasoned traders alike.
One that we see all the time is the Pump and Dump. It’s a racket with a long history and continues to leave bagholders in its wake today.
Table of Contents
What Is a Pump and Dump?
A pump and dump is pretty simple.
A group of people artificially inflates (or “pumps”) a stock’s price through misleading or exaggerated claims, often in low-float or thinly traded stocks.
Once enough traders pile in, they “dump” their shares at the inflated price, leaving everyone else holding the bag as the stock collapses.
Think of any stock that goes from $0.50 to $5 in a matter of hours and then crashes back to earth just as quickly…
That’s a textbook pump and dump.
Why Do Traders Fall for Pump and Dumps?
As with so many trade failures, greed and FOMO are the main culprits here.
If you’ve ever watched a stock skyrocket and thought, “Oh no, I’m missing out on a great opportunity. I need to get in on that,” you’re not alone.
Pump and dumps thrive on these kinds of thoughts.
The promoters will flood chatrooms, message boards, Twitter, and other social media with all kinds of hype.
They’ll make it seem like this is your once-in-a-lifetime chance to turn a few hundred bucks into thousands.
And the real truth is that by the time the average trader jumps in, the insiders have already built their positions and are getting ready to unload.
How to Spot a Pump and Dump
Spotting these schemes isn’t rocket science if you know the warning signs.
Parabolic Price Movement Without Real News:
If a stock suddenly skyrockets 100%, 200%, or more within a day with no legitimate news driving it—no earnings beat, no game-changing partnership—then you should be skeptical.
Low-Float Stocks:
Many pump and dumps happen in low-float stocks (usually under 10 million shares).
Why?
Because it’s easier to move the price when there’s limited supply.
If you see a low-float stock going wild, take a step back and ask yourself, “Who or what is really behind this?”
Over-the-Top Promoters:
Watch out for promotional campaigns designed to suck in retail traders. Legit companies don’t need to send spam to attract investors.
Sudden Volume Spikes:
If a stock that usually trades 100,000 shares per day suddenly jumps to 10 million, and the volume increase isn’t linked to a major announcement or other catalyst, that’s a major clue.
Pumps rely on volume to drive prices higher.
Insiders Selling:
This is a huge red flag.
Always check SEC filings (like Form 4) to see if insiders are unloading their shares while the stock is running.
And if they’re selling into price strength, definitely reconsider chasing that move.
Why Pump and Dumps Are Dangerous
The main reason pump and dumps are so dangerous is because they collapse fast.
What goes up in a pump comes down even faster.
It’s like a scary game of musical chairs and you’re the one left without a seat.
Let’s say you’re trading a stock that’s up 300% on the day. You think you can stay in and make a few extra cents.
In reality, the big players who started the pump in the first place are already selling…
By the time you hit the sell button, the stock’s dropped 50%. Good luck getting your order filled at this point.
Pump and dumps can wipe out a small account in the blink of an eye.
How to Protect Yourself
Now that you know how to spot pump and dumps, here’s how to avoid getting caught in them:
Do Your Own Research:
Don’t blindly follow tips from message boards or other social media.
If you hear about a “hot stock,” dig into the fundamentals, check recent filings, and verify whether there’s any real catalyst driving the move.
Don’t Chase Parabolic Moves:
I can’t stress this enough: If a stock has already made a huge move, you’re late to the party.
The best trades happen before the crowd piles in.
Use Risk Management:
Never trade without a plan.
As with any trade, set stop losses and stick to them.
And please, please don’t put your entire account into one trade, no matter how tempting it seems.
Recognize When You’re Being Emotional:
Greed and FOMO are your worst enemies in trading.
If you feel that “I can’t miss this” sensation creeping in, walk away.
There will always be another trade tomorrow.
Use the Right Tools:
You need great tools to know how to spot a good trade and when to stay away from a dangerous scam.
At a minimum, you should have a robust trading platform that includes real-time data, charting, news, and more.
My top pick, and the one I use every day, is StocksToTrade.
It features everything mentioned above…PLUS, right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
My Final Thoughts…
The market is full of traps, but pump and dumps are one of the easiest to avoid if you stay disciplined.
Remember, smart trading is about longevity, not short-term gains.
To build long-term success, focus on setups you can repeat, strategies you can refine, and discipline you can count on.
The real wins come from consistency and preparation.
For more trading advice, join our StocksToTrade community.
We have tons of free live webinars.
They run all day and offer trading tips and tricks, info on our Oracle trading system, and other valuable training.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade