(Beginning stage of the pump)
This is where the orchestrators of the pump accumulate the stock. The accumulation time varies but it’s usually a few days to a few weeks. It’s virtually easy to detect when the accumulation is occurring by looking at the company’s chart. If you pull up the volume (as shown in this real life example), there is an instant spike in volume. The stock virtually goes from dormant to active overnight. This is where the beginners of the pump “buy-in”. Notice, while there is a spike in volume; the range of the stock doesn’t go far. This is purposeful. You want to buy up in huge quantities without spiking the price too much.
This is the part where attention needs to be drawn to the stock. The orchestrators need investors to sell their shares to at a higher price. How do they do this? Well, like I stated before; they need to draw attention to the stock. It can take many forms but the most common is through promotion. It helps if there is a compelling story about the stock and the company. Perhaps, the company is the next Google. Perhaps, it will revolutionize how we drive our cars, consume our cable television, pay our bills, etc. Point is, ensure that the story is believable and compelling. If you can somehow associate a celebrity with the stock and product this can help as well. Again, the objective here is to sell the story.
Stock Increases in Price
The “pump” is working. The story is believable and who wouldn’t want to get in early on the cure for Cancer. Or the next Chipotle, Amazon, Google, etc. Seemingly unsuspecting investors start to put their hard earned money into the stock, buying it up in huge volumes and quantity. This effectively sends the price of the stock, higher and higher. After all, most people can afford A LOT of shares of a stock that cost 5 cents or a dime.
Here is where things get interesting for everyone involved.
The orchestrators are now ready to unload the shares they began accumulating at the beginning of this cycle. They are now selling to the folks that are coming late to this party.
And as they unload the shares, the price starts to decline.
It goes from all time highs, back to the lows (where the pump started). Leaving unsuspecting investors out of a lot of money.
How do you Profit?
1. Learn to identify when the pump starts and buy-in, thus allowing you to ride it up (wouldn't recommend this to any new trader).
2. Learn to identify the ending stages of the pump and go short, profiting off the eventual fall (wouldn't recommend this to any new trader).
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