Ahhh, penny stock promoters.
If you’ve been hanging out on this blog for a while, you’ve probably seen some of my past take-downs of penny stock promoters.
I call out bullshit when I see it, but it might surprise you to know that I don’t actually hate penny stock promoters.
I mean, I hate it when their games cause unsuspecting, uneducated people to lose money. And I really hate it when celebrities leverage their fame and fortune to make a quick buck off a penny stock scheme.
But I don’t hate penny stock promoters themselves – I use them for predictable profits and so should you.
I’ve been trading more than fifteen years now, and in that time, I’ve learned how to predict stock moves thanks to the manipulation created by penny stock promoters and get ahead of their games.
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Who are stock promoters?
Penny stock promoters aren’t some mythical puppet-masters pulling strings behind the scenes, and they aren’t Darth Vader level evil (well, most of them aren’t…).
Stock promoters are simply individuals or companies that are hired to help raise money and media buzz to artificially inflate a penny stock’s price in order for insiders to liquidate or insiders to enrich themselves by raising capital at artificially inflated prices. They’re paid in either cash or company stock and are typically compensated based on how successful their efforts are.
What do stock promoters do?
Stock promoters achieve their goal of raising money or mentions for a company using a number of different techniques.
For example, they might pay to place an ad in a market newspaper or magazine touting a stock as “the next big thing.” They might send out mailers saying the same thing, hoping to catch people who want stock trading success to be as simple as acting on the “hot tips” they find.
They might take even more unscrupulous actions, like leaking fake press releases or hyping some BS new product to the media or trolling stock trading forums, hoping to ignite viral interest in a stock that wouldn’t otherwise deserve it on its own merits.
Basically, what they’re trying to achieve is to create an artificial runup on a given company’s stock – and they will pay five, six and sometimes seven figures on the promotion since they have millions of shares they want to unload at higher prices.
The pump and dump
Let’s say that I run a small biotech company and I’m having trouble getting a loan from a traditional bank. Hell, for this example, I’m going to be generous and say that I’m a legit company that’s actually trying to bring a product to market (even though most penny stocks traded on the pink/grey sheets and the OTCBB don’t have real products at all, the only product they’re interested in truly selling is their stock).
You, a stock promoter, come to me and say, “Tim, I know you’re having trouble getting a loan. I’m going to give you $25 million in cash now in exchange for 25% of your company’s floated stock at a discounted rate.”
I’m thrilled, and so are you. You go out and start running a major ad campaign talking about how my company is poised to release revolutionary technology – that it looks like my company could be the next Microsoft.
Predictably, amateur traders see your ads and press releases and they act. They buy, based on the “hot tip” that you published. You sit back, watch the stock go up and then cash out once my stock seems to have hit its peak.
Everybody wins – except for the retail traders that got totally screwed when the stock collapsed after you pulled out and made millions.
That’s a simplistic explanation of what goes on behind the scenes, and it’s only one type of strategy penny stock promoters use to profit.
You don’t need to know all of their strategies by heart. For now, what you need to know is that this type of manipulation happens all the time. The job of a stock promoter isn’t to give you sound investment advice – it’s to make money for themselves and for the companies they promote and that’s why ALL penny stock promoters “newsletters” are free, they burn the people who don’t pay them anything and they enrich those who do pay them.
That’s why I’m SO proud of my educational newsletters that do cost a little $, but you know who I’m loyal to, my students first above all else, because if I burn my subscribers, they cancel, just like they do with penny stock promoters galore, and the reason I have the most # of PAYING subscribers is because I work my butt off 17 hours/day educating them with watch lists, commentary, trade alerts and now 3,000+ video lessons!
That said, that doesn’t mean that penny stock promoters can’t be useful to you…
Promoters aren’t trustworthy, but they are useful
That sample “pump and dump” scheme I described above? It’s fraud – plain and simple. But it’s fraud that happens every day in the world of penny stocks.
I’m not telling you all of this to scare you, although I understand if that kind of description makes you want to run as far away from stock trading as possible. After all, how can you even begin to compete with promoters that are out there, intentionally manipulating the markets for their own game?
The thing is, I don’t want you to try to compete against them.
Think about stock promoters like the sharks of the ocean. They’re out there, swimming around and looking for their next meal. If you swim into their path, you’re going to get eaten. But what happens if you swim with them, instead of against them?
Penny stock promoters are out there, and you can’t fight them. But you can learn to work with them by using them to spot patterns.
Use promoters to spot patterns
I know most of the stock promoters operating today, and I’ve studied how each of them does business.
I follow different sources of investment information, which means I see the signs of a potential stock manipulation coming down the road.
And I know what a penny stock’s chart looks like when a promoter’s scheme hits as I outline in several live penny stock trades HERE because I’ve watched as these promotions have been carried out in the past and learned from the hundreds upon hundreds of examples I’ve seen in action.
So before the first mailer hits the first unsuspecting retail investor, I’ve already spotted the pump and dump in the making.
I sometimes take a long position with the FULL understanding and expectation that the price will crash or halt at some point, hence why when I do buy it’s only VERY early in a penny stock promotion, NOT late. I’ve already set my mental stop point in my head so that I know when to get out in order to maintain my preferred risk-reward ratio. This prevents me from getting caught up in the stock’s upward price momentum, holding on longer than I should and getting squeezed as a result.
More importantly, I’m also looking for opportunities to take a short position as the pump and dump plays out. Unlike most of the amateurs getting in on the action, I know this stock is going to crash and burn at some point and the crashes are brutal, 30%, 50%, sometimes 70-90% all in a day or two…please watch these key penny stock trading videos to better understand.
So as long as I can get the shares to short, I’m probably going to make bank when the penny stock pump crashes. Most retail investors are going to lose money on the stock because they don’t realize the manipulation nor do they realize they can profit when the stock crashes, but I’ve set myself up to make money time and again on pretty much every penny stock pump that spikes enough (although sometimes I can’t find shares to short and more often lately many penny stock pumps fail entirely from the get go and there’s no play for me).
And that, my friends, is how you take advantage of stock promoters.
Learn how to spot stock promoters’ schemes
If you’re first starting out, I want to issue you a word of caution. The scenario above might sound straight-forward, but it’s one thing to read about stock promoter schemes – it’s an entirely different thing to execute on them in real life.
Suppose you have a sense that a certain stock is being promoted, but you don’t know when to get in, when to get out or when to take a short position. If you don’t recognize the patterns – simply because you’re new to the game – you might hold on too long, leaving you in the same boat as the retail traders who fell for the promoter’s “hot tip.”
Knowing that manipulation is occurring and being able to profit from it are two different things entirely.
So what can you do? Like I said earlier, I don’t want this to scare you off. As the number of millionaire students I’ve been able to create shows, anybody can learn how to recognize these schemes and take advantage of them.
When I was a young trader, I made mistake after mistake after mistake, all because I didn’t have somebody to teach me. I didn’t have somebody to show me the ropes and help me avoid falling into the traps these trading scenarios can create.
Obviously, I learned what works and what doesn’t, but I would have been successful much earlier on if I hadn’t had to count so many losses among my wins.
I want to be the teacher who helps you learn how to navigate penny stock promoter manipulation.
You don’t have to take nearly as many losses as I did early in my trading career. I can cut your learning curve in half by sharing with you my hard-won knowledge that lets me recognize when a scheme is occurring and know what plays to make to come out on top.
Want to pick my brain? See how I handle the way penny stock promoters manipulate the market? It’s all available in my millionaire trader challenge. If you’re ready to learn how to ride the waves promoters create, click here to join me on the inside.