How can you spot a penny stock that is a "pump & dump" at any particular time?
The answer is not as simple as some people may think. Here are some key points to consider about this subject:
1. Not all penny stocks are pump & dumps.
2. Some penny stocks' PPS may actually go up in value because of good news about the company/industry or because the stock's technical indicators look good at that moment.
3. Although PPS of stocks are "supposed" to go up when the company comes out with good news or when the industry the company is in is doing well that is not always the case.
4. Penny stocks respond differently compared to all other financial instruments. Technical analysis and shorter term trading influence prices of penny stocks drastically compared to other instruments.
5. The traders (not necessarily the investors) that are more expert at trading penny stocks know how to take their profits at better times than other traders, so even if there is good news about the company or industry there will still be sellers waiting to sell during the up trend in price.
6. The times when a certain penny stock is a pump and dump is not always easy to spot, but there are certain obvious signs (at least to those that have this knowledge already).
There are more specifics involved as well. The bottom line is that you need to know how the penny stock market works before you do any real trading in it. Even if you have traded other markets or financial instruments it does not mean you will be successful trading penny stocks. This has been proven countless times. So you should get the best training or education possible. Don't get caught up in the hype of thinking it's easy to make a ton of money without having the right knowledge.
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