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Forum - Wall Street Pit    Stock Due Diligence for All

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From: luvb2b (Rep: 2080)Date: 08/28/2011 10:19
Forum: Wall Street Pit - Msg #2177212Thread #673286497 (Rec: 47)
someone asked for the penny pumper playbook - here you go!

you can basically review mr phd pumper's trading actions & "advice" and see how it all fits perfectly with what i've outlined below:
* focus on small caps w/lower volume and price - which are easier to pump
* small positions relative to % of equity in a stock - hard to move size on a pump-n-dump
* actively hide relevant company information that would work against the pump (ex: company is primarily water coolers not coffee).
* book profits when you have decent percent move - pumps don't last long timewise
* generally small 30-50c winners - get too greedy and institutions will ruin it
* maintain reputation to be liked and viewed as "a good guy"
* offer your trading "advice" so you can bring others into your "club"
* post repeatedly on small stocks to maximize chances others will see & act.
* incorporate celebratory and congratulatory remarks to reinforce participation amongst the followers while at the same time to make non-followers feel left out - makes them more likely to get in next time.
* repeatedly emphasize your ongoing "success" so others will try to "learn" (i.e., follow)
* don't show too many (or any) losers or big losses - any tarnishing of the image reduces likelihood someone will follow.
* venture out into other instruments from time to time to try to show you are really a "trader" and not a pumper (ex: gld)

where the penny pumper will show his true colors:
* relative incompetence to know anything meaningful about the companies (note the "i could learn about finance if it was important to do so" comment)
* has difficulty to trade high dollar value liquid instruments that he cannot manipulate (financials, energy, metals, indexes, large caps)
* harder to profit in bear markets when pumps are less likely to work.
* complete inability to understand macro trends (i.e., prepare for broad market rally at the top, china is booming as its slowing, short consumer stocks on the lows, etc etc.)

ok now to the mechanics -

let's say we're looking at a stock with the following characteristics. ignore the fundamentals - they don't matter to the phd-level penny pumper (which is why they neglect accounting issues as multiple pumpers have now stated).

current share price: $2
avg daily volume: 20,000 shares
avg daily range: 15c

based on the above statistics, the items below are derived / estimated:

avg daily dollar volume = avg volume x share price = $40,000
avg daily market maker/high frequency trading %volume = 50% (typical average for stocks)
avg daily investor %volume = 1 - (avg mm & hft volume) = 50%
avg daily investor dollar volume = avg daily investor %volume x avg daily $ volume = $20,000

the last line is important. it means only $20,000 of daily trading is done by real investors & not done by robots and market makers.

if you can double that and add another $20,000 of buyside interest then you should be able to get the stock to move higher by about its average daily range (that's just a rough approximation but it works over short time frames in illiquid stocks).

over a period of several days, it may actually take $40,000 to move the stock higher by 1x it's average daily range and hold it there. with approximately $160,000 of new buyside interest added to the mix, the stock could move up 4x it's average daily range to $2.60 for a gain of 30%.

now the question is... how to generate $160k of buyside interest? the penny pumper is not the type to just sit quietly and wait for months or years to make a profit. he wants to make profits quickly, book the "trade", and move to the next one. you may notice these guys rotating through stocks every few days or weeks, it should start to make sense why soon.

assuming an average small trader could be convinced to invest $10,000, the pumper needs to find about 16 traders in probably about 2-3 weeks to get the stock marked up 60c.

that's during a rising or neutral market when bigger investors are less likely to sell on a small 60 cent blip (even though it's 30% gain to the pumper). during a falling market when people are looking for exits it gets a little bit harder so the pumper has to work harder too.

mr phd penny pumper, by building a reputation as a trading guru, "helping" others, and forming "friendships" and alliances with traders in numerous communities has access to (as he himself stated) nearly 600 traders in 2 chat rooms plus the traders at the pit, probably another 200 that don't overlap in the other communities. that means he has access to a minimum audience of 800 traders - not including other communities he may use.

again, assuming a trader invests an average of $10,000, he only needs to convince about 2% of these traders to get on his gravy train for it to come into station. think about those odds, if only 2% of the audience follow with a small investment, mr. pumper makes 30%. even if less than 2% follow (say 1%) it's most likely going to result in gains or at worst minimal losses

as long as mr penny pumper doesn't buy too many shares (note his comments about keeping position sizes small) he can easily sell out that position to the latecomers. by not holding too long and making sure everything is "just a trade" he can make a consistent living, building wealth "10c to $500 at a time"...

on your back.



my daily motivational reading, what the high and mighty penny pumpers say about luv:

"any knowledge you currently have about trading, finance, accounting, etc... that i don't, are things i can fully absorb within a relatively short period of time if its really important to do so... on the other hand, i am quite certain that you are incapable of grasping even 20% of the knowledge i've gained in math, associated algorithmic coding, physical chemistry, solid-state physics, materials science and engineering over decades of study." 

"There are those who market trades, and there are those who trade markets.
There are those who follow marketers, and those who follow markets.
The marketers feast on their followers; the traders feast on the markets." -luvb2b

***Disclaimer & Disclosure***: I make no guarantee as to the accuracy or validity of information in this message. Messages posted reflect my own opinions and/or those of others, and are posted for entertainment purposes only. My messages should not be construed as investment advice. Always make investment decisions in consultation with your own financial advisor. Daytrading is not suitable for everyone. You trade at your own risk. Daytrading involves considerable risk and could result in significant losses, including losses in excess of invested capital. Any information posted here is meant for entertainment purposes only and should not be assumed to be accurate. It is expected that the readers of this information do their own research and due diligence when making trading or investment decisions. I may have long or short positions in any of the stocks that are mentioned, and these positions may change at any time.

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