20 Dec WHAT ARE PROMOTION STOCKS? must read
WHAT ARE PROMOTION STOCKS?
In the broadest sense of the term, stock promotions are a means of drawing attention (awareness) to little-known, usually low-priced securities that would otherwise attract few investors. Every paid promotion is initiated by someone that already owns shares of stock in the company and is looking to sell (dump) their shares into the market. The job of the promoter is to create volume and find buyers for those shares. Most stock promotions (also be referred to as pump & dumps) provide little to no money making opportunities for retail investors. There are a few that do prove to be very profitable if traded properly. These "profitable" stock promotions often result in the price climbing for a period of time during the promotion (pump) before eventually falling back down towards its starting price or well below the starting price. For traders, stock promotions can create profitable opportunities from both the long and the short side of the trade; for investors, stock promotions are almost always deadly. For this reason understanding the different type of stock promotions and stock promoters is absolutely crucial to trade them for a profit. Here are a few things traders should understand about promotion stocks:
- Shell scheme / insider enrichment setup - a shell scheme is when a group of insiders control a ticker and all of its free trading stock; usually through nominee offshore entities used to hide their identity/share ownership. This free trading stock is going to be used to sell into the market to profit from the scheme. Our team at Promotion Stock Secrets have mastered the ability to identify tickers/shells that are set-up to be taken public for a future insider enrichment scheme.
- Story - paid promotions work best when the promoter has a good story to sell to investors. Most of these shell schemes go public with no real business operations. Before a paid promotion begins, the shell will often be subject to some type of reverse merger or acquisition to bring a story with more shine to sell to potential investors. The better the story, the more effective and long lasting the scheme can be, allowing the controlling insiders to maximize their profit potential. It is important to realize that an overwhelming majority of these shells are not real businesses. The companies are literally just a story or business used to convince people to purchase the stock in the scheme. The better and more solid the story, the less likely the SEC will look to halt a stock from trading.
Pre promotion stocks (pre promo)
A "pre promotion" stock is a security that we have determined to be part of a shell scheme / insider enrichment setup set up for a future paid promotion. The stock at this point has yet to receive any form of paid market awareness, aside from likely compensation to an investor relations firm. Investor relations firm controls investor communication and put together press releases used to establish the story for a company that will be set-up to sell shares into the market.
- climber - a climber is a stock that is being hyper controlled and walked up a specific number of ticks each day as the controlling insiders build a stock chart to attract new money. The price is walked up using wash trading as they attempt to create the illusion of demand for the stock and also establish a term we have adopted for this technique - perceived value. A climber is often times a pre promo stock, but is there is never a guarantee that the name will receive compensated awareness.
- wash trading - when insiders set up multiple accounts and trade stock back and forth with themselves to establish a perceived demand or value to the stock
- walk up - when the price of a stock slowly climbs over a period of time through well controlled price action normally by wash trading
- perceived value - a strong/good looking price chart can draw the attention of retail investors and make the stock look more attractive and more valuable than it really is. By creating a nice walk up pattern for a stock (usually through wash trading), the insiders create the illusion that there is a strong buyers market for the stock and retail investors start wanting to get into the stock to be a part of the perceived profits.
- paperboy - many times there will be a specific market maker (s) controlling the stock (sometimes referred to as 'paper') being sold into the market. An old school term for the controlling market maker is the 'axe'. I like to refer to the specific market maker holding the paper for play as the paperboy.
- common promotion stock market makers/paperboys - VFIN, VNDM, VERT, DLNY, WORL, WDCO, PUMA, BKRT, MAXM, ATDF, MICA, GLEN as well as many more.
Once a stock promotion has been confirmed, you have to identify if it is a compensated program (or not), determine who is funding the promotion, and identify which group is involved in the awareness program.
Low level awareness
Low level awareness is attention that is being brought to a ticker by message board posters, social media posts, and email lists with very small subscriber bases. The volume brought into the name by the market awareness is normally minimal as are the opportunities for gains. At times, however, these stocks take on a life of their own and can offer up substantial gains, but must be traded responsibly as that is not the norm.
A few factors that can contribute to a low level awareness stock taking on a life of it's own:
- kool-aid - The penny stock investors will believe anything phenomenon. "Drinking the kool-aid" is used to describe penny stock investors that will believe an obvious fraud is real. This term was derived from the Jonestown mass cult murder-suicide incident of 1978 in which over 900 people were killed by drinking "kool-aid" laced with cyanide at the direction of their cult leader. The penny stock market is full of inexperienced gullible get-rich quick type investors that do not necessarily understand how penny stocks work or that most are not legitimate companies. Pumpers and penny stock CEOs love to take advantage of this endless supply of gullible investors by putting out obviously fake/exaggerated news/information which sounds too good to be true. The better the news/information sounds the more attention the stock will receive.
- cult stock - A term given to a penny stock that has gained a large very loyal group of followers that believe so strongly that their company is real, and will some day fulfill all of the company's promises, that they will defend the stock with super strong convictions right to the bitter end and beyond. Even after a stock is exposed as a scam, parked on no bid, suspended by the SEC, or even stops trading all together, these cult followers of the stock will go on defending the stock believing that every bit of information/news the stock ever put out is still true. Cult stocks have the ability to be used for multiple pump & dumps over a very large span of time (often even years). Because of this cult following, a repeated cycle of new catalyst will often bring in large volume whenever insiders are looking to dump more stock again.
D list awareness
One step above low level awareness are email promotions conducted by websites that provide little opportunity for gains. However it is very useful to keep track of these type. For short sellers, if a D list or low level awareness program starts for a ticker priced above $1 - there is an excellent chance that the name will provide opportunities for capturing 25% + in downside. As well, many times D list promoters will do an 'uncompensated' stock promotion to help build their reputation and email lists. Since there is no paying party and no large holder ready to dump shares into the market, the uncompensated D list promotion at times offers opportunity for gains from the long side as well. This helps the promoter spins their brand in a positive light. You can search Google and Yahoo using keywords such as: penny stocks, promotion stocks, top penny stocks to buy and the like to find the latest group.
Boiler room / cold calls
One of the oldest forms of stock promotion is the boiler room/cold calls. This is when the promoter will actually pick up the phone and call potential investors and try to talk them into buying a stock. The caller will do their best to sell the idea that the company is real and on the verge of becoming some kind of huge success story using high pressure sale tactics. Boiler room stock promotions (especially for pink sheet stocks) were very popular in the 1980s and 1990s by the less ethical brokerage firms (as in the movie Wolf of Wall Street) before the internet made it much easier and much cheaper to reach more potential investors faster. With the birth of the internet and spam email solicitations you no longer had to be a registered broker to sell shares to the public. The internet allows anybody to set up a stock promotion company and sell the idea of buying a stock to the public anonymously. Very few promoters rely on Boiler room/cold calls for stock promotions but there still are a few that are very active.
One of the most common forms of stock promotion today is email promotions. Promoters will build up a data base of emails (potential investors) through sign-up options at their websites. They will often supplement their lists by acquiring lists from or trading/sharing lists with other paid promoters, stealing lists from various websites that keep emails lists, or through other means. The promoter will then send out an email to everyone in their email data base to promoting a stock and encouraging the email recipient to buy the stock with promises that they will get rich by investing in that stock. The larger the list the more potential volume an email spam promoter could bring to a ticker. The spam email promoter will often use teaser emails to build up the suspense and create some excitement for the future pick. Because email promotions are usually received by more potential investors and bring in more volume, email spam promotions are often used on tickers with larger floats starting in a lower price range than newsletter or hard mailer promotions. Some of the best email promoters in recent years have been Awesome Penny Stocks (which is no longer active), Stock Tips, and Finest Penny Stocks. The best email promoters often have direct links to the insiders that control all of the free trading stock in the tickers that they promote giving them the extra advantage of having better control of the price action.
Newsletter promotions will have what is referred to as a landing page. A landing page is a domain/web page dedicated to the promotion of a stock. The web page is set up in a newsletter/investor packet type of format with lots of pictures and highlighted phrases used to glorify the investor potential of a stock. Like all penny stock promotions, the focus is more on the industry and the future potential of the ticker (forward looking statements) than on current or past business results. Newsletter promotions are more common with stocks that are in strong multi-billion dollar industries that are shared by power house corporations like the beverage industry (Pepsi/Coke), the medical industry (Pfizer), clothing industry (True Religion), auto industry (Tesla), Oil & Gas industry (ExxonMobile), precious metals industry (Barrick), etc. The bigger the forward looking story the better the promotion potential. Newsletter promotions are often accompanied by email spam and/or hard mailers. We prefer to see newsletter promotions be accompanied by hard mailers as that is a good sign that bigger money is involved in supporting the promotion and that the promotion will last longer. Since newsletter promotions often do not create the same amount of volume as an email spam promotion the stock being promoted usually has a smaller float and starts from a higher price range than an email spam promotion.
A hard mailer is newsletter/investor packet that is actually mailed (snail mail) to a potential investors homes (a hard copy) as opposed to the online landing page. A hard mailer can be a single page flyer or a 20+ page glossy investor packet. Obviously the more pages and the better the quality, the larger the money often is behind the promotion. The more money that is behind the promotion, the odds increase that the potential for the promotion to do well. A 20+ page all glossy hard mailer is the most expensive type of promotion so these type of promotions often are used on ticker with smaller floats starting from a higher price range.
What does the stated compensation for a promotion mean?
The stated compensation often means very little since the promoter is rarely actually paid the amount that is listed. Some promoters like to list a ridiculously huge dollar amount for their compensation received to create the perception that there is a lot of money behind the paid promotion, while others list very little compensation. Having a good knowledge of the promoter that is being paid is more important than the compensation listed. Some email spam promoters are historically better than others and some newsletter promoters are historically better than others. Also more important than the compensation listed is being able to recognize if the promotion has big money supporting it. Big money often shows up in the price action through obvious wash trading, well controlled consistent price action over an extended period of time, growing volume/interest as the price climbs, strong recovery off of dips, and big bid support when needed. Often understanding the set-up (the share structure, who might be involved in the ticker, and links to past tickers/past paid promotions) helps give us an idea what type of support/strength to expect from a paid promotion.
- how do I find stated compensation? - the stated compensation is normally listed in the disclaimer at the bottom of the promotional piece (email spam, newsletter, hard mailer, etc). It the promotional piece doesn't have a disclaimer the disclaimer usually can be found buried some where on the promoter's website. By law the stock promoter must disclose any payment they have received to promote the stock.
WHEN DO I BUY?
One of the most common questions we get is when do I buy a promotion stock?
Each scenario is unique, though the patterns repeat themselves over and over. With climber and major promotion tickers, you want to see perceived value being established on the chart by coordinated wash trading. You would love to see a chart pattern or support level established, but the beginning of a promo and the buy point is one of the trickiest things to deal with. It takes lots of time and experience to get a feel for where the initial spot is. It's a constant learning process. Ideally, you will see which market maker is controlling the sale of the stock and at what level the stock appears to be supported. Best case scenario you will see larger size blocks of stock hitting the tape (time and sales) giving a hint as to where the starting point / support point for the beginning of the play will be. This is something that can only truly be learned by watching and studying the plays over and over. Depending upon the type of program being run and the amount of stock that is free trading, those blocks will vary in size. The blocks will also vary in size according to the price being paid. It is important to look at the dollar amount being funneled in to a name at a specific level as they attempt to establish a perceived value level to trade around. This gives you an idea of how much money you would be able to potentially move in and out of a name and how much money is being dedicated to running the scheme. That in turn gives you an idea of how long the scheme will remain in play.
WHEN DO I SELL?
As with any trade, prior to entering you need to have a set risk point where you will sell your position and either take a small planned loss if the trade goes against you or a plan to sell your shares to realize your gains. These points will depend upon your position size and risk tolerance. This will depend on what type of trade it is. This depends on multiple variables, and needs to be addressed on a case by case basis.
Climber trades are medium to long term swing trades generally with smaller position sizes. Each program is different, but ideally after a period of time where the stock is walked up in a controlled manner for x amount of time, the stock will then begin to trade with increased dollar volume and greater range of price towards the end of the program. During this speed up action compared to the previous trading is ideally the time to look to sell.
I don't want to sell too soon
The main goal trading is to enter a trade with a set plan and stick to that plan and focus and execute. As long as you are learning from each trade and continuing to move forward and compound knowledge, wisdom and ideally gains, it really isn't possible to sell too soon. You can always sell portions of your position at specific resistance points and any speed up moves and hold a small amount vs. your entry point letting a least a small portion of your trade work to maximize profits, while already securing the trade will be profitable by realizing gains along the way.
WHEN DO I SHORT SELL?
Depending upon the type of promotion, your personal trading style, position size, and risk tolerance, once a promotion has begun the speed up action it will top out and find a price point where the stock is no longer supported and supply far outweighs demand. Speed up moves into main numbers $1, $2, $5 etc and fails off those give numbers give you set risk back to the whole number and can be a good spot to look as the promotion comes to the speed up point. This is a very general statement and can only truly be read on a case by case basis in real time using level 2, time and sales, support and resistance levels, trend, volume and, of course, part trader feel. As with any trade, you must have a planned point to take a loss if the trade goes against you and planned points to cover and take profits as well.
BEST OF LUCK TO ALL
Make sure to watch for your email inboxes for the latest updates in the promotion stock game. Be in chat for up to the moment commentary with us every day. We are always available to answer members questions and help in any way possible. Thanks all~