Our statistical analysis of over two years of trading in promoted tickers strongly suggests that traders might want to get an extra half hour of sleep
July 21, 2015: Many penny stock players admit that they participate in a promotion campaign only because they are looking for a quick flip; a swing trade to take advantage of the temporary hype generated by the Pump & Dump campaign. These traders often get in during the opening trades and hope to quickly find an eventual bag holder who is willing to buy into the fairy tale the promoter and the company are spinning, and soon takeover ownership of the shares while presenting the flipper with a quick albeit small profit.
Many of the flippers are market makers, who are the only ones that can buy shares traded through OTCmarkets quotation systems prior to the market open. Any pre-market buying is purely intended to take advantage of the anticipated surge in buying during the opening minutes of the day’s trading. These shares are never acquired as an investment and will soon return to the market. Unbeknownst to the not-so-savvy trader, the day’s trading turns into a selling spree as the flippers join the perpetrators of the scheme in a search for takers of their stock. Shares may continue to rise even as they are dumped, but only because there are a large amount of retail traders falling for the story. When the scheme runs out of suckers, the share price will decline. This is because there are not enough suckers for all the stock out there.
When there is little interest in the promoted stock, shares may trade down right from the open, as those with stock to sell care little about the price they get. Promotions that garner interest will see shares of the targeted stock rise at the open and create a gap up in the share price. Sometimes the gap up is minimal; just a few percentage points. Occasionally, the more followed promoters or the wilder stories, can create gaps of 100% or more. This wide gap will create even more interest in the stock as dupes start chasing the share price, widening the gap even further. This is what sets the mouths of flippers, promoters and insiders to drool.
We studied 2 ½ years of executed trades on promoted tickers for each trading day since February 2013 to June 2015 and reviewed on The Nightly, our analysis of each day’s trading of promoted tickers. Some of the results of our study are very telling.
We compiled stats from over 8200 day to day promotions over a 29 month period. Key to the data analyzed in this report is the day’s high trade and the time of day that watermark is first reached.
The high trade of the day on a promoted ticker will occur by 10:00 am 84.7% of the time.
In other words, 84.7% of the time, at least 360 minutes of the 390 minute trading day is spent chasing the high trade of the day.
If we narrow that window to the first 15 minutes of the trading day, the high trade for a promoted ticker will occur by 9:45 am, 73.2% of the time.
What this means is that most penny stock speculators, even day traders, don’t stand a chance, most of the time. The fix is in.
It also suggests that losses would likely be pared if traders waited until after 10:00 am to buy into promotions.
The high trade of the day is the watermark promoters use when they brag about the results of their "pick" for the day. So the 84.7% of the time that the high trade of the day occurred by 10:00 am, these snake oil salesmen are ignoring trades for the other 6 hours of the trading day, when the stuckees are getting hurt.
When the high trade of the day is achieved by 10:00 am, the share price will close lower than the previous day's close 42.8% of time.
This is especially interesting because it suggests that if you knew a ticker was going to be promoted on the next day and purchased shares at the close, you would be likely to have an opportunity to get out of your stock at a profit at some of the next trading day 57.2% of the time. Of course the only ones who know the days on which a ticker will be promoted are the promoters themselves and the participants or financiers of the promotion. Then there's still the 42.8% of promotions which will not close higher. Also, we found that the average increase in the day to day closing price was only 6.1% so that's a lot of risk for very little reward.
The high trade of the day on a promoted ticker will, on average, be retraced 1.4 times during the day.
This means that after the high trade has been achieved, you are more likely than not to see lower highs even if the share price fluctuates rather than set a course due south..
The first return to the high of the day will occur within 30 minutes of the first trade at the high, 88.6% of the time.
If the ticker hasn't retraced to the high of the day within 30 minutes, it is unlike to at all. Also, we found that subsequent returns to the high are experienced over progressively shorter times, if at all. Also interesting is that trading volume between successive trades at the high of the day decreases between each retracement, 90.3% of the time. 81% of the time, the volume between retracements to the high of the day is less than half of the volume traded to reach the previous occurrence of the high of the day. So even if there is a retracement to the high of the day, not everyone who bought shares on the way up to the first occurrence of the high of the day will be able to get out of their shares anywhere close to the high.
Promoted tickers which reach the high of the day by 10:00 am will have a close below the opening trade of the day 68.8% of the time.
We still call this a red close because unless you knew that the ticker would be promoted on the day before, you probably did not own shares prior to the promotion. That is why we calculate the change in the share price from the day's opening trade rather than the previous day's close. A gap up (or down) at the opening trade is irrelevant because you have to consider the manipulation that the promotion creates.
Promoted tickers will have lower highs on the next day that the ticker is promoted 89.1% of the time.
If your shares ended the day at a discount from the price you paid, don't expect to recover your losses the next time the stock is promoted. That is almost a sure way to end up as a bag holder.
Promoted tickers which reach the high of the day by 10:00 am will trade an average of 31.1% of the day’s volume by 10:00 am.
This means that the rest of the day will be spent with stuckees that are trying to minimize their losses by exiting positions and joining the perpetrators of the scheme who are dumping their shares. Almost always, the share price will continue to drop as selling increases and creating a bigger rush for the exits.
A promoted ticker that reaches the high trade of the day by 10:00 am, will see its share price decline by an average 24.2% over the next hour.
The decline continues after the first hour 83% of the time, a result of the ever increasing urgency to get out of positions.
A promoted ticker that reaches the high of the day by 10:00 am will end the day with a majority of losing trades 77.3% of the time
Trades that are executed above the closing price are said to be losing trades. 67.3% of the time, losing trades will be over 70% of all trades executed on the day that the high is reached by 10:00 am.
What have we learned?
As we have already surmised, traders who lose money on penny stocks—and that is unquestionably the vast majority--are likely to lose less if they wait until after 10:00 am to jump into a promoted ticker. It stands to reason then, that the perpetrators of these Pump & Dump campaigns rely heavily on trades that execute prior to 10:00 am in order to be able to successfully carry out their nefarious schemes.