If you thought Wall Street was bad, it’s because you have never invested in Penny Stocks. The unfortunate truth is that the world of the pink sheets and OTCBB is full of Bernie Madoffs. Companies end up in the pink sheets for a reason. In the words of Wall Street “They are dogs” even worse “They are dogs with fleas.” And those fleas are the stock promoters who try and push these worthless stocks on the general public.

That said there is another side to penny stocks. And that’s the side of easy fortunes and big money. It’s a fact that there is a lot of money to be made trading in the penny stock market. Penny Stocks (as the name suggests) are valued at less than a dollar. As such it is much easier for a penny stock to move from say 10 cents to 20 cents, than for a blue chip stock to move from $50 to $100. Even though the percentage difference maybe the same.

So there is a lot of room to make money. Unfortunately there is also a lot room to lose money as well. What goes up can come down just as quickly. However if the canny trader enters the market with their eyes wide open there are in fact easy pickings to be had. And these easy pickings come from the greatest corruption which exists in the penny stock market, the Pump and Dump.

Even the name Pump and Dump sounds pretty insidious doesn’t it? Well the truth is it is. How this scam works is a promoter will find a stock that is pretty much worthless and then either in collusion with management or without, he will pump the stock. So what does pumping entail you ask? Basically a team of cold callers will call across people across the United States and use hard sales tactics to get them to buy the stock. In essence they pump the stock.

And it’s not difficult to work out what happens next. The suckers who bought the overpriced shares are left holding stock in a worthless company. The market quickly realises it’s been suckered and the stock plummets back to earth.

So where is the fortune to be had in all this you might ask? Well, I’m assuming you have at least a little shred of morality, and as such you don’t want to play the part of the promoter. However there is one neat trick with stocks.

You can short sell them.

That means you make money when the stock goes down. Now you are probably already see where I’m going with this. If you can identify which stocks have been pumped (and it’s not so difficult, this guys are nothing if not obvious) and you know what technical indicators to look for that the stock is about drop like a stone. Then you can make some serious cash.

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Category: Finances
Keywords: how to short penny stocks, shorting penny stocks, short penny stocks, penny stocks