Looking at a Pump and Dump Follow-Through

Checking a Pump and Dump follow-through example, or several examples for that matter, will allow you to learn about the real possibility of having a large loss on a single trade due to manipulation.

Many times people just look at how a stock moved up quickly, and think about the large amount of money they "could have made".

But what about tracking the performance after the initial move up occurs?

Sometimes you'll find a stock that jumps higher, and stays higher for a single or several days. Other times you'll come across a more typical Pump and Dump where the stock jumps higher for a few minutes and that's it, like in our example on the previous Pump and Dump post.

Here's the chart example from the previous post again as a refresher:

Pump and Dump

This example displays a typical Pump and Dump scenario of the initial large percentage price movement followed by, well no follow-through at all, This leads to a decline in share price after a few minutes once the buying interest returns to normal (or lack of).

Let's take a look at how this particular stock did over the next several days after the chart above:

Pump and Dump follow-through

You can see that just 2 days after the initial "pump" which I showed on the prior post from October 1, 2009, that the share price has gone from a high of just over $1.20 a share to a low of about $.40 two days later.

For anyone who bought between in at over $1.00 per share during the initial "pump" and held on to their shares, they would have had an unrealized loss 2 days later of more than 60% when the major "dump" occurred.

While there definitely was a "dump" on the same day as the initial "pump" on October 1st, the lack of volume that occurs in this particular type of stock caused a major drop in share price 2 days later causing tremendous unrealized losses and pain for anyone holding on to their positions.

I think that it's a good idea to track specific recommendations from anyone you are following on paper, for several days at least (depending on the time frame specified in the trade of course), to see how reliable the trades are, consistently. Everyone has losses, but if the majority of trade recommendations from a single source look like the ones on this page, you may want to stay away from them in the future.

Conversely, if this type of action does occur consistently, you could also thinking about taking the other side of this persons recommendations. This takes advanced skills, training and discipline though, so don't just try this without learning what you are doing first.




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