My strategy is basically find a stock that has been “pumped” and once it is “dumped” short it and ride it all the way down. In the short time that I have followed this way, I have found chart after chart that has followed this pattern. There are a few more variables that are added in that increase the probability that it will follow this plan. Here is my basic formula that I use to find each stock I want to play. First, I use the StockHacker in ThinkorSwim and find stocks within the $.50 – $5 range, have a volume of at least 100,000, and the percent gain is 20% or more. This usually gives me around 10 stocks in which I scan personally to find the best stocks. The things to look for in these companies is first, the news. You’re looking for a spike in the stock with absolutely no news to attribute it to. This usually shows that this stock is being “pumped”. After that, I look at the company financials and see what type of shape they are in. The best companies for this strategy are ones that are failing and will continue to go down. Once all these variables are in place I look at the chart more carefully and find strong support and resistance points. Lets say a stock is at .50 and there is strong resistance at .60, there is a good chance it will start its descent there. If it breaks .60 it will continue higher and we will look for the next turn around point. The final aspect we look at is when the stock has its first down day after the huge spike. This means the stock closed at a lower price than it opened. This is the biggest indicator that it will turn around and head the other way. Again, if you have any other questions or would like me to post about something specific please let me know in the comments.
