I'm Exposing the Chinese PUMP & DUMP Scheme! transcript

in today's episode I'm going to teach you how to spot a pump and dump scheme in the market so you can avoid taking unnecessary losses now a lot of beginner Traders including myself get caught in pump and dumps when they're getting started because we're naive we don't know any better but that's not going to be you after today's episode now just today we had a stock that went up over 1,000% with absolutely no news it went from $4 to over $40 a share and guess what it was a pump and dump now when I first saw this stock squeezing up and we'll look at the chart in just a second I thought maybe just maybe this was actually a short squeeze but you know what's really interesting the vehicles that are being used for these pump and dump schemes they're mostly Chinese stocks this was a Chinese stock and the people running these schemes they're foreign Nationals they're not us residents these are people that are international and they're using these stocks to produce a lot of profit to fund their International organizations now how do you as a retail Trader avoid getting caught in this drama because here's the problem you do not want to get caught in one of these stocks when they start dropping because I will warn you I have seen them drop as much as 95% in a single day when the liquidation Begins the bottom falls out and they drop and a lot of beginner Traders will be a deer in the headlights because they don't know what to do they've never seen a stock drop this quickly the losses they start getting bigger and bigger and bigger fear sets in you panic and you just hold you hold you hope it's going to bounce and they don't bounce they keep dropping let's jump onto the screen share and look at this uh chart so this is the stock today chsn Chinese small cap ends up going from $4 a share to over $40 a share and now it's back down at 12 so it's dropped 60 70% off the highs and it may drop quite a bit more so when I first saw this stock squeezing up I actually wasn't sure whe whether or not it was a pump and dump or just a classic short squeeze and this is our first order of business we've got to be able to differentiate a short squeeze which is when a stock basically goes like straight up do you remember GameStop gme that was a short squeeze we love short squeezes by the way my name is Ross Cameron I'm a full-time Trader I took my first trades in 2001 more than 20 years ago at this point I got interested in the market during the dot bubble so I've been around the block I've seen a lot of this action and I can share with you what I think is going on in fact during this episode I'm going to expose the pump and dumps that are happening in these International stocks because they're going on almost every single day right now and that's got to put you on alert because you got to be careful because I don't want to see you take unnecessary losses so GameStop that's a short squeeze we love that Traders took huge short positions right here and as the stock starts to squeeze up they're forced to cover for a loss the higher it goes the more they have to well the bigger their loss gets they've got to buy back shares and as they buy back their buying is actually fueling the price going higher even faster and you know what I think is happening with some of these pumpin Dums I think that these scammers are getting very sophisticated and they're actually trying to trap people into going short so they can squeeze them out and force almost force a short squeeze it's really unbelievable so when you look at this the CH the challenging thing really is this clearly is volatility and as active Traders we love volatility so could you have traded it should you have traded it well clearly I mean there was opportunity to trade it to the long side going up this thing went from four to 5 6 7 8 9 10 to 15 back down to six back up to 18 back down all the way up to 30 back down to 20 up to 44 and then and well it kind of rolled over and has now been unwinding so there was opportunity to trade it to the long side going up there was opportunity to short it trading to the short side coming back down now I think that one of the things that is amplifying this type of volatility is the easy availability of shorting shorting is something that wasn't as big in the market 10 15 years ago now it was certainly highlighted by GameStop am and many of the other stocks that made these big moves those were short squeezes they weren't pump and dumps but here I think we're seeing a little bit of a combination of both now I want to play an episode for you on naked Short Selling this is a practice that um is very controversial it is illegal to naked short sale stocks but it's happening in the market every single day why you check out this video this is a clip from gaming Wall Street the HBO documentary and this is a former Morgan Stanley employee talking about naked Short Selling let's listen to what you know folks that are still you know in the industry and they've been like I wouldn't advise you to talk about it blah but I just I think that they're living you know they're they're all living in kind of a fake World um you know I would you know illegally naked short sale stocks every day every day as long as I was collecting commissions so I think that that's a power pretty powerful statement what he's saying is that he was naked short selling stocks every day as long as he was getting paid what that means is that in order to short a stock you have to have shares that you borrow from someone else and with a lot of these small Chinese stocks there's not a lot of shares available period And there's not a lot of shares to borrow but if there's Brokers out there who are willing to go to naked short sell and just print those shares and let other people short them then effectively they're setting up the potential for an epic short squeeze where suddenly they're letting people short an infinite amount of shares against a stock that has the potential to go up a th% in one day imagine that think about that I mean you short 10,000 shares it goes up $10 a share you're down 100,000 bucks you do that with 100,000 shares you're down a million you do it with you know I mean like think about how quickly this adds up you do it with a million shares you're down 10 million 20 million 30 million 40 million 50 million 100 million as these things squeeze higher and in fact I'm going to show you an example today of a stock that actually went from about $20 a share to over $2,500 a share was it Chinese yes it was was it a short squeeze it might have been you know it's hard it's hard to know for sure was it a pump and dump it might have been that as well how do you manage risk as a Trader in these markets that's going to be the question that we're going to answer in today's episode so now if we go back to this video he's got more to say oh let's not let's not cut him off he's actually got some more he wants to say about naked Short Selling let's listen and the bank did not care the client will send you an order electronically all you do is you click on the order you go to execute it'll pull up a little box you type in anything you want and you just hit okay you don't ask questions you appreciate the order and if that involves shorting a thought naked you do do it anyway you do it anyway right so this is this video has made the rounds a lot of people have paid attention to this because this has been an admission that these big Wall Street Banks they feel like they can kind of do what they want now we know in the case of the GameStop short squeeze that Melvin Capital lost $6 billion during that squeeze and the only reason that squeeze stopped was because the big Brokers they changed the rules they took away the buyby now they said they did it because of their their capital or collateral obligation to their clearing firms which may have been legitimate but nonetheless it felt like they changed the rules in the middle of the game to accommodate them being up against the ropes and maybe the hedge funds being up against the ropes so all of a sudden us as retail we get the rug pulled out from underneath us so we always have to be thinking how can we manage our risk in a market where naked Short Selling is going on in a market where we're seeing these Chinese pumpin dumps what is a Trader to do so let's go ahead and jump into today's slide deck this is a a full length class I think you guys are really going to enjoy it and we're going to start by identifying talking about how to identify a pump and dump all right so cctg this was another Chinese pump and dump this was a it was a confirmed pump and dump there was no question about it that's what it was so let's talk about the pump aspect of the pump and dump the pump is orchestrated across social media Facebook Twitter WhatsApp and Telegram and that's very sophisticated the way this works is we're actually seeing these scammers running ads this is an ad right here that was run using my profile picture right here and a fake account set up that looks like me but that's a fake account that is not my account it's not a verified account right so I have seen these not just for me I've seen these for some some actually like I've seen them for Bill Amman let's see I've got one right here this was Bill Amman imagine imagine this bill Amman founder of persing square I've decided join Bill Amman on the journey to Innovation he's going to be now sharing his investment tips with a new group on WhatsApp huh yeah no that's that's BS it's a scammer and what's really really BS about this is that you know who's getting paid Facebook Facebook gets paid meta gets paid from these scammers spending money running ads to solicit people into these groups now we have a system at Warrior trading that we use for um I guess trust and safety to try to get these accounts shut down as quickly as possible but as quickly as we try to shut them down a dozen more open it's like it it is it's impossible they are so sophisticated and it seems like these social media sites they're not doing I don't know what they're doing to stop it but we see it on YouTube we see it on Facebook we see it on Twitter we see it on Reddit and then they're using WhatsApp and telegram to start to communicate with these people that are in their system so the way they begin the pump is first they get a group of people in a WhatsApp so they run these ads they're soliciting all these people and when you click on the ads I actually went and clicked on to see what would happen so it sends you into this little um this little page right here where you know it's this is a fake accounts all this BL blah stuff and it sends you into a WhatsApp group again not not me not a real Warrior trading account and when you're in the group now you start talking with this person Sophia Taylor my quote assistant this is all Bs as you can imagine and they start telling you these are the transaction records so this was from December this is from this is from last year that I got the screenshot and they were reporting that these were the recent trades that they had taken and they said we're going to be sending you a trade soon so essentially they hook you in with these psychological tactics they're going show you the history of profitable trades they're going to tell you you're going to make a profit guaranteed and then all you have to do is wait he says I recommend about 5 to eight big Rising stocks every month about 1 to two every week the profits of these stocks are about 15 to 50% or even higher now I can tell you that these people don't speak English as a first language so just the the whole Cadence the language I mean if you read into it you could tell pretty quickly these are not English as a first speaking language people so then this is kind of crazy um he says these are some precautions to keep in mind he says the stocks I recommend are obtained through inside information please do not tell others about it and when I first saw that I was like are you kidding me so you're going to tell people that this is insider trading essentially I was like that how crazy is that and I said no no you know what he's doing that he's doing that so you become complicit so you maybe won't report him to the police which you know of course not be good for them I said oh my goodness that sounds like insider trading and he goes sh so all right and I'm sorry to laugh because this is just so absurd so anyways um he says so I'm I'm just playing along because I want to know what's going to happen next so then he says cctg is today's Insider tip he sent that on that particular day at 958 or 8:58 a.m. he said please wait for my notification regarding the buying price and do not operate without my permission he's very bossy so I say okay I say okay uh the price will adjust later please wait for my message and then he says buy at current price now here's the thing that was amazing because I had gotten this message from this scammer who was part of the pump and dump group I knew that cctg was probably going to get this alert at some point today so I started recording the level two of the stock the depth of the market and what I noticed was all of a sudden at 850 if you look at this at $8.50 I noticed 100,000 shares suddenly pop onto the ask they're sitting there on the ask and guess what happens a moment later buy at current price this was 10:15 and 17 seconds less than four minutes later I get the notification buy at current price and they're probably sending this out to thousands of people so all of a sudden I see that and I'm like I I knew it and he says after the purchase is successful send me a screenshot so that I can notify you when it will be sold and I sent him this really blurry screenshot just cuz I I didn't want him to you know I don't know and then he says I can't see your picture clearly I was like so I kind of was playing around a little bit but as soon as he sends this out all of a sudden we've got this 100,000 share buy order and guess what happens the stock squeezes up that by order is gone so that's 100,000 shares at $88.50 that order is gone boom so all of a sudden CH Ching they're printing $850,000 it's a $850,000 uh so let's see 10,000 shares would be yeah uh so no sorry 1,000 shares would be 850 uh 8,500 10,000 shares would be 85,000 yeah 100,000 shares would be $850,000 golly that's a huge position I I don't trade position position is that big it's I don't even do the math easily on top of my head so that's a $800,000 position so someone in that moment ch- Ching booked a profit now we don't know what price they were in at but we know they were in at a much lower price enough that that was a profit all right so all of a sudden it goes out now guess what happened today on chsn chsn I saw it on Twitter chsn today's exclusive pick chsn Buy price $286 86 use cash in your account after setting it up just wait for the transaction please send me a screenshot of the order when it is completed boom so this stock chsn today was part of another pump and dump scheme by these WhatsApp scammers and this continues to happen now I think at a certain point Regulators are going to step in and try to figure out why this is happening now why is it happening specifically on these International companies is there a reason is it a coincidence it's not a coincidence there is a reason and I'm going to share it with you in today's episode and something you have to be cautious about but we still have the question of this is volatility should you have traded it now I actually didn't know whether or not this was actually a pump and dump or a short squeeze until later this evening when I was doing my research and I was finally able to find someone who posted a picture of a WhatsApp message because earlier I was seeing lots of people trading it long Traders were buying it Traders were selling it they were shorting it they were trading it you know because this volatility is an opportunity and they they were just like I'll I'll capitalize on it I'll trade it and I just looked at it with a bit of concern and caution and I was just thinking well but you know is this is this a pump and dum so now let's back up out of this for one second let's go back here um so this was today on chsn so how are the bad guys making money here so they're secretly acquiring they secretly acquire massive positions at a low price of course they're not transparent they don't tell you the price that they're in at you you have no idea you don't even know if they're you know they could they could be in at Zar a share how would that happen I'll explain in a moment so these shares may be purchased on the open market following the IPO in that case the company the actual company is just a vehicle the company isn't aware probably of what's Happening they probably don't really know what's going on but in some cases and we don't know which are which in some cases these shares could be issued directly by the company and the company is involved this is more common with OTC stocks we've seen it a lot with pink sheet stocks you talk about like Wolf of Wall Street you know th those kind of stocks that's when the ultimate beneficial ownership can be disguised through shell companies because the OTC market and the pink sheets don't have the same regulatory requirements of NASDAQ and NY so so the ultimate beneficial owners can be disguised uh through shell companies that are in multiple foreign jurisdictions which have very strict privacy laws like Panama so with those OTC companies it's very possible that the people that are pumping it actually were involved in bringing the company to the public market and essentially have shares at a cost basis of of nothing so there was a story of someone who became the richest person in the world technically what they did uh just to kind of prove how this works was they created a company and they issued uh I think it was like a billion shares they created a company issued a billion shares or maybe it was a 100 billion shares it was an it was an outrageous number of shares so create a company issued a 100 billion shares and then they went out on the street and they asked someone if they wanted to buy one share of his new startup for 20 bucks and they said sure and so he said okay based on this I have now sold one share $20 so my 100 billion Shares are worth $20 a share boom I'm the richest man in the world just like that so that's good math it doesn't really check out but this is the type of stuff that we see some people try to do and try to take advantage of to work the system and so in the OTC market if you create created a shell company and created a billion shares or however much it is you put it on the market and then all of a sudden you've got all these WhatsApp groups that are pumping the stock you're in at zero any price that it goes to is a profit and so now when you see these stocks that drop 90% in one day you know at a certain point you would think the selling would stop right like when it goes down to a dollar or 50 cents or 20 cents or 10 cents but they're still selling are they still at a profit at 10 s a share cuz if that's the case then they were in from before the IPO but I don't know in the case of chsm and I don't know in in the case of these individual stocks because I'm not in the position to know I don't know who owns these shares I don't you know ultimately if a regulator really wanted to know what they could do is they could go and they could figure out who is the person that placed this order right here for 100,000 shares these two orders because that person clearly is involved in this I I would say in this scheme now it may be someone who is hired and doesn't know what they're doing d da but most likely that ties in with this scheme so Regulators would have a way to find out but as a retail Trader we don't have info to that data so I I don't know for sure you know that position what was their average price now it's possible in the case of chsn this is a stock that now ipoed um quite some time ago it it wasn't really a recent IPO at this point it ipoed um over a year ago and then we had this pump and dump right here this was the pump and dump it drops all the way down and then today was pump and dump round two they went back for the same stock now some people said well this is actually a stock that you know hasn't been trading on much volume in the last few months 35,000 shares of volume a day you wouldn't have been able to accumulate enough shares at this type of volume you would think for this type of pump but you know I could be wrong in the past week 200,000 shares 300,000 shares so there's been a little bit more so could they have been accumulating in this area I don't know I really don't know the scale of how big it is I don't know if they're taking millions of shares that they're selling on the market or they're just taking you know I don't know but if we look at this stock xhg this was one that had a um a dump just um last week and on this dump it dropped about 90% in one day as you can see right here and as it dropped right here this is unbelievable another Chinese stock look at all the volume this is trading 1 million 3 million 4 million 5 million I mean it traded at least 40 million shares of volume through this drop so that made me think 40 million shares of volume gosh did did those you know people on the inside did they actually were they actually holding 40 million shares how much of that was them how much of it was retail traders who got caught holding the bag and are dumping now I'm not sure but there are some other things that are going on with these uh pumping dumps and I think this well now let's back this up I'm going to move this up here so so now you get a sense of how the bad guys are making money they accumulate shares one way or another whether it's on the open market or it's somehow through the company issuing them shares we don't know but after the pump we get the inevitable dump now again you have to different iate the dump that we had on GameStop so to speak which was profit taking and maybe some people shorting but was not part of a pump and dump scheme so in order for this to be a pump and dump the element that's required is this right here what's Happening Here is there are insiders who have accumulated huge positions and are dumping on the open market they are lying to you they're saying buy this stock D and they're dumping their shares so this is the element here of um that makes it a pump and dump that we didn't have on GameStop right GameStop was just you know it was it was just an epic short squeeze so this is the dump this was MSS this is a stock that same thing look this thing went up to $24 a share and then in one day it drops from 16 to a dollar and then here's another one this oh this is xhg from just the other day here's another one this one atgl it goes from you know $2 it goes right up to 32 and this one was interesting because this was a recent IPO so there wasn't a lot of time for insiders to accumulate or I'm saying insiders but the people running the scheme to accumulate shares but it goes all the way up here to 30 and then comes all the way back down to two this is another one in this case this one kind of just started selling off right away I feel like this one's sort of a flop this one EJH goes up way high and then comes all the way back down so this is the pattern that we keep noticing it goes up and they slam down these are the days where we're getting the dump and most times what's happening is the pump is occurring just before the dump so you get all of this pumping that's going on on WhatsApp on telegram on social media and then that runs out and all of a sudden the bottom falls out and the WhatsApp messages stop everything goes quiet now you look at some of these and you're thinking well geez but this is momentum you know this goes from 4 to 6 to 8 to 10 to 12 should I not trade these you know is this is this just too risky and that's that is that's a question and we're going to talk about it I'm gonna I'm going to answer that question you know to the best of of how I feel about it today and that could change in the future but I'll I'll kind of walk you through my my opinion on it this is another one this one you know I mean it's just unbelievable these are the moves you don't want to get caught in but it just keeps happening now this this I thought was fascinating see how it pops up and then it drops see I felt like here they were getting kind of fancy they push it up and then immediately it drops now so let's step back for one second I'm going to put this right here and I've got another I got another video that I want you guys to watch this one this one's a little bit different this is going to talk about um something that we've been seeing in the market where these these big hedge funds bully these stocks they push them around to try to create a certain impression and I think that some of those tactics that hedge funds have been using for a long time are now being used by some of the WhatsApp scammers let's listen in here this is Jim Kramer he's talking about um well he's talking about his hedge fund let's look you know a lot of times when I was short at my hedge fun and I was position short meaning I needed it down uh I would uh create create a um a level of activity beforehand that could drive the Futures it doesn't take much money uh similarly if uh or if I were long and I would want to make things a little bit Rosy I would go in and take a bunch of stocks and make sure that they are they're higher you know maybe commit 5 million in capital to do it and I could affect it uh what you're seeing now is maybe it probably is bigger market now maybe you need 10 million in capital to knock the stuff down but it's a fun game and it's a lucrative game and you you can move it up and then fade it that's all often creat a very negative feel so let's say you take a longer term view in your day and you say listen I'm going to boost the Futures and then when the real sellers come in real Market comes in they're going to knock it down that's going to create a negative uh negative view that's a strategy very worth doing when you're Val when you're valued on a day-to-day basis and so here this is kind of um this is what I'm wondering if we're seeing some of these um scammers do they're sort of pushing these stocks higher and then as soon as they push High it creates this level of um liquidity and volume so we had this stock TN you may recall this one this was another one that was absolutely insane I mean that this was this was oops sorry this one was unbelievable let's let's back up this chart this stock literally goes I mean this is insane so here look at this it goes on the first day from about $4 to 10 which by itself was impressive the next day it's it sells off all day long there so it goes hits a high of about about $10 drops all the way down to four everyone assumes it's dead and so what are shorts doing they're shorting this fade they're like this is probably another Chinese pump and dump I'm going to short it I'm going to have a big winner and then all of a sudden what happens the next day you see this candle you want to look at how big this candle is this stock went from $4 to $130 a share in 10 minutes holy smokes shorts got destroyed but then what ended up happening it comes all the way back down so isn't that funny right so the and and and here's the thing it's like the they they push it higher and then they just sell into it so the amount of volume that this required these two candles required a total of 300,000 shares of volume that was it 300,000 shares of volume was enough to create those two candles and then how much volume did this trade for the rest of the day for the rest of the day this ended up trading total volume on that day of about 25 million shares and so the crazy thing here is sort of what Jim Kramer's talking about how if they if they said you know what let's use 300,000 shares to jam this the price of this stock up as high as possible and then what's going to happen well actual Traders retail Traders are going to jump in cuz for the most part we're dumb money we're idiots and we just trade whatever's moving higher and I mean I'll admit it if I see something hitting my scanner I'm like you know a dog with a squirrel I see a hitting and next thing you know I want to jump in and that's what a lot of momentum Traders do we try to capitalize on that volatility so next thing you know we're trading it we're buying it we're shorting it and then all of that creates the liquidity that allows these insiders or these people that have accumulated shares just to dump their shares on the market so I feel like they're laughing all the way to the bank now I guess at the end of the day if you were able to trade one of these and you walk away with 20 cents per share of profit on a, shares you made your $200 a day you're doing that consistently you don't have anything to complain about you just got to make sure you know what you're doing you got to be careful and you got to make sure you don't get caught holding the bag on one of these because they don't recover most of them don't now I guess chsn technically recovered today as it bounced back up but but that's an exception it's not the norm so let's back this um up here we'll jump back into the slides so the big question is should I trade these stocks and for me well there's a couple there's let's you know clearly there's volatility here so can you profit during the pump so if you know a stock is being actively pumped you know you're hearing people saying hey I'm getting the WhatsApp messages da d da my opinion is I don't want to trade it because I don't want to take trades that are essentially supporting the bad guys making money I'm creating the liquidity by actively trading a stock that they're just planning on dumping so while you could profit if it's volatile I think it's best to just avoid these types of stocks entirely but the reality is we typically don't know which stocks are being actively promoted in pump and dump schemes how would we know I mean unless you've got unless you're on every single one of those WhatsApp groups which I mean your phone would be blowing up if you are you you probably won't know so that leaves us simply with trading the price action but always being on alert for suspicious activity so since it's more or less impossible to know every stock that's being promoted by social media campaigns and everything else when I see a stock hitting my scanner regardless of the sector the location of the company if there's an opportunity I'll try to trade the front side of the move as the stock is going up and when I say the front side I mean I want to trade the beginning of the move before the first macd crossover so if you look at chsn today uh and and really I mean if you're going to be a little more aggressive essentially trading anytime the macd is positive that's the technical indicator that I'm using so right here the macd was positive from about 1240 till it crossed over here went negative went positive again went negative went positive again here and stayed positive until here so that means this window was potentially fine this window was potentially fine and then this cross over here nope it's done so that's a technical indicator that I'm using in my trading to help me focus on trading when I've got the highest probability of success regardless of really what the exact company is could be any sector could be Chinese could be us company doesn't matter trading when the macd is open on the front side of the move that's usually when I do the best now I didn't trade this in this area I just this halted too fast it was in the afternoon da da I did end up taking a trade because I was sitting down here funny enough to record this class and I see chsn squeezing up and initially I just thought this was momentum and I thought it was a short squeeze I thought it was a short squeeze because I checked the short interest and I saw it was 28% and I thought you know 28% is not crazy high but it's not nothing either especially on one of these stocks and this doesn't account for potential naked short interest right that's not going to be reported because that's not even supposed to be happening so that made me think well maybe there's something here now after I finished trading and I ended up only making like 150 bucks on it um no actually let's see I'll pull up my p&l here for so you can see so um so after I finished trading it um I ended up uh doing doing my research and getting ready to record this class and that's when I realized wait a second this this stock actually um I found the WhatsApp message so then I was like oh boy you know that's that's a problem so I finished today up $5,000 $8.26 was a small green day only made 158 on chsn it wasn't anything serious but but nonetheless so um so for me you know my my opinion is focus on your technical indicators if you see something that's worthy of trading take your trades but as soon as you find out that it's part of a pump and dump then at that point probably the safest move is to step back and be awfully careful if you're thinking about shorting it because they they seem to know exactly how to trap short Sellers and the fact that they're able to trap short sellers with these types of moves I think speaks to how much they control the float on these stocks and the only way they control control the float to that extent is by owning huge chunks of shares now typically if you own huge chunks of shares more than 10% you've got to file you got to make um you know regulatory filings for that but you know I don't think that they're adhering to that so now on the flip side what about the dump is there an opportunity to Short The Dump as it comes back down I was thinking the same thing that's exactly what I was thinking back about a year ago when I had seen maybe 15 of these in a row I was like all right it's time to start shorting the dump these things keep going up and then they drop 90% in one day it's easy money now anytime you say something is easy money it's not easy money and you're about to get well you're get your butt handed to you and I almost did so this is what I thought I'm seeing these stocks dropping 90% in one day I'm ready to participate in the action to the short side all right let's break the ice so on chsn back like six months ago I knew it was coming I mean I saw this ramping up and I was like all right guys this is I'm going to look for a short position because this is ridiculous all right now if you had taken a short position on this a 5,000 share short position could have produced a profit of $80,000 a 10,000 share short position would have produced $160,000 so when I saw this on chsn I started thinking all right I want to short it but here's the problem in order to short these stocks you need to know the following information number one does it have short sale restriction number two two the availability of shares to borrow and number three the cost to borrow shares so the short sale restriction also known as SSR although in some platforms it's listed as CB is a restriction where if a stock drops 10% in one day you cannot short the stock on a down tick which means you can't hit the bid so the bid is right here at 510 and if you want to short a stock that's not on short sale restriction you could just sell right there to that buyer at 510 you could hit the bid and you're in immediately but as soon as a stock is on short sale restriction you cannot get in by hitting the bid in fact you have to sit on the ask and wait to get filled when a buyer comes and buys the shares that you are selling you sell them short someone buys them from you it's called the uptick rule and this was created actually a long time ago to prevent flash crashes so now if a stock is down more than 10% you cannot hit the bit the problem with these stocks is that once they start dropping they start dropping quick so instantly they're down 10% so now you're dealing with trying to short a stock on short sale restriction that everyone wants to short because they're seeing it dropping so every time it does pop up even for a second how many people are buying not many people are buying people aren't even covering short they're just holding so it doesn't really bounce it just keeps going lower and every time it even tries to bounce there's a wall of sellers in front of you so essentially I realize that if you wait for it to start dropping you're going to miss the entire move secondly you wait for it to start dropping well most midcaps and large caps are easy to borrow right e means easy to borrow but most of these small cap Chinese stocks are not easy to borrow let's check out chsn today let's see if they had shares so right here at lighted they have no shares available of chsn even if you wanted to short it today you wouldn't have been able to there were no shares available now at this broker there may be Brokers out there that engage in naked Short Selling they're not going to admit it but there may be Brokers out there that well we know there are some that do and there may be Brokers out there that just have a better inventory of shares and that would have had it but even if they have it and most of them don't well if they have it how much does it cost so the problem with a lot of these stocks is um and I'll see if I could find another one we can check uh just to see what the price look like let's see um so it's a little bit late well it's after hours now so probably I probably won't be able to pull a price but let's just say for instance um when when you start if you want to borrow a stock to short it then you and it's hard to borrow you have to pay your broker to go find those shares for you and you pay the broker a fee and the fee is per share so let's say it's 20 cents per share to borrow 5,000 shares so if you borrow 5,000 shares at 20 cents per share that's going to cost you $1,000 to borrow that stock so if you start shorting when the stock is still going up you're going to pay $1,000 a day in borrowing fees these fees are per day but on the day that it starts dropping the borrowing fees shoot up in fact if we go back to ortex here we'll see um where is it it's right here if we look at ortex let's look at the um the rate so the cost to borrow has been increasing over the last three months well it's down over the last three months over the last seven days it's up it looks like about 8% cost to borrow 17.26% which is not outrageously high but I bet by tomorrow uh we'll see if H is it giving us is it going to give us any live so it says live has gone up to 31% um cost to borrow increased um to about 23% so it's it's High I mean the fact is the cost to borrow the stock is expensive so now if you de side you want to start shorting it during the pump while it's still moving higher you're shorting as it's going higher which is kind of like the only way because if you wait for it to drop it's on short sale restriction and the cost to borrow has doubled or tripled and you might not be able to get in at all so if you want to short it you kind of have to short as it's going higher and that feels like playing with fire right so I felt like because of the way I'd seen some of these just moving higher and higher and higher adding short into strength golly you're asking for trouble I mean th you're trading literally against the trend and this is where most people would be better off just trading to the long side right making the money trading to the long side so adding to something as it goes higher works until it doesn't and that's why short sellers that have that strategy usually have like 90% success but their average Prof their profit to loss ratio is so inverted cuz when they lose they get blown up look at this HKD this stock went from $345 a share to over $2,500 a share and this one I don't know whether or not there was a WhatsApp uh group promoting it if there was a pump and dump I'm not sure I don't recall with well I never I never really found out so I don't know it's possible it was a Chinese stock in any case if you had a 5,000 share position it's not even a big position that could have produced a loss of $12.5 million now in my entire career I've taken an account with uh well less than $600 and turned it into more than $10 million and verified and independently audited trading profits and and imagine just for a second if I took that all that profit and managed to lose it all in one day on one trade I don't even know how I honestly I don't even know how I would recover from that I I I don't know how I would a 10,000 share position on this could have produced a $25 million loss and you think think well Russ okay you're not going to lose $12 million you know you'd cover the position you get out you know pretty quick that'd be fine well wait a second don't forget you know that Brokers can autol liquidate you right so if your account goes into the negative because you trade it on margin and leverage to the long side or you took a short position which is on Leverage and margin and it goes up too high they can autol liquidate your account so GameStop of course resulted in Melvin Capital basically being autol liquidated by by I think Citadel for a Lo for a loss of $6.8 billion round up to seven uh so so that clearly is is not going to work now let's look at this particular stock this is a stock that dropped about 80 90% in one day and I kind of thought you know chasing made more sense on this you can't short into strength you're better off waiting for it to start dropping and just try to get filled but I didn't have the guts to do it and I just I was like ah I don't know so of course you know I'm just I'm a little bit too risk averse to do this so anyways it ends up dropping here down to 14 and then it ends up halting up so when a stock halts up what happens is trading freezes because the stock has gone up more than 10% in less than five minutes so it instantly squeezes up and so if I show you on the Whiteboard what this looks like we've got the bid and we've got the ask or the offer so let's say the stock halts up at $5 so the last price was $5 and then it's halted while the stock is halted all of a sudden what if you see a price of $50 you see a price of $50 a share and you're like how is that possible how did this just go from $5 to 50 and the way it goes from $5 to 50 is first the stock is halted and it's going up and so all of a sudden it's up it's halted at $5 and people want to buy it so they put out orders to buy at six and then someone puts out in order to buy higher at 7 and someone puts out in order to buy higher at 8 and people keep bidding against each other even when the stock is halted but there's no trading that's occurring so if there's no one selling the sell orders are all gone because people cancel their order and the reason people would cancel sell orders is because typically when stocks halt going up they open higher so if you're already in usually you cancel your sell order and let's see how high it opens right if it opens really high you're in great shape so they usually halt up and they open higher so it halts up at five and all of a sudden it's showing a resumption of you know $7 and then the person at Seven's like well I'm going to cancel my order and then there's another buyer and they their orders at eight and now all of a sudden it's showing let's say a $10 resumption so now imagine you shorted 10,000 shares of this at450 thinking that was the top and it's showing a $10 resumption you're down $50,000 minus 50 Grand in the red now what if you only had $25,000 in your account and you were trading this was a trade you took on Leverage let's just say for instance so now your broker is going to say um uhoh you're down $50,000 now now maybe in this case you're okay so you're not at a margin call yet so the stock resumes at 10 and immediately squeezes up to $14 a share or $12 a share let's just say and it halts up a second time and now the resumption is showing 18 uh oh you're now down over $100,000 which means right now your account is in the negative so the broker comes in they're like Auto liquidate person is showing unrealized p&l that far exceeds their cash balance and so what does the broker do they take control of your account and they say 10,000 shares buy 10,000 share buy order and this person at 18 says hey I'm going to cancel that order next sellers at 20 they canceled the order and this still that buy order is still out there because the broker needs to cover the loss and now they're saying 25 and the next thing you know it's showing 30 it resumes at 30 maybe they buy back some of your shares but it instantly goes into another halt at 33 and now it's halted again and it's showing now a $40 resumption and you're still in with let's say 4500 shares whatever doesn't matter you're still in the partial position so the broker still got another buy order out there to cover more now at a certain point when these get outrageously High some other short sellers will say N I think this is the top I'm going to short it for the move back down and then you start getting some sell words that come in and they say you know I'm going to sell it at 39 I want to start shorting this I think it's going to drop and maybe it ends up going down but maybe what happens is all of a sudden those WhatsApp scammers come in and they send out a buy alert telling everyone to buy it at $40 a share and then what does that do boom all of a sudden it's showing a $60 resumption so what happened in the case of zjl and this was another WhatsApp scam stock is it halt down like four times in a row then all of a sudden buy it it goes up to 1250 it resumes and it instantly halts up and it goes to 25 it's halted at $25 a share and now those people who shorted 5,000 shares up here thinking they were really smart like me but were really dumb money we're idiots all of a sudden they're seeing this stock showing a resumption you want to know how high it was not 50 $500 a share $500 a share that was the resumption price the WhatsApp scammers won and unfortunately that high Hal resumption triggered Mark tomarket unrealized losses those losses exceeded the equity balance of Traders accounts requiring autol liquidation at market price that pushed the imbalance even higher to the buy side created huge losses for short Sellers and it resumed at $500 a share a 5,000 share position would have resulted in a $2.4 million loss 10,000 shares would have been $4.8 million gone just like that because you're playing with fire because you're trading a stock that's part of a pumping D because you're trading one of these Chinese small caps now we now we don't know whether or not ZJ well actually we do know with ZJ yl but we don't know in every instance whether or not a stock is involved in a pump and dum so one thing that I would say is that shorting any of these small cap stocks carries for me an unacceptable an unacceptable level of risk and I'm going to put my money where my mouth is here and tell you that I'm not going to short these stocks I'm not just saying this because you know I I I don't know I'm going to tell you I'm not going to do it I don't want to take the risk I don't want one trade to ruin my career it's not worth it I've been doing this for too long I haven't been interested in the market for 27 years to get blown up in one trade like that it's just not worth it now will I trade some of these to the long side I will I will trade some of them to the long side and here's my opinion right now I've got about $195,000 in my account about $200,000 in my account I produced at this point well over $10 million in net profit so if I lose the whole $200 Grand which is really the worst that could happen I bought a stock and it goes to zero I can recover from that I don't want to have that happen but I could recover from that recovering from a 3 million $4 million $10 million loss a $20 million loss Lo no I'm not going to put myself in the position where that could happen so the way a stock went from $25 a share to $50 a share in this case was an interesting combination of intraday short interest High short interest with the pumpin DU or organized by these International Traders or these International you know criminal organization so it was sort of a combination they came together we had short interest and a pump and dump and that's kind of what happened today on chsn there were definitely short sellers that got smoked on chsn so they underestimated the power of the WhatsApp group so shorting exposes you to an unlimited loss not to sound like a broken record so in my opinion while I understand the profit the desire to profit on the dump I think the risk of short in these stocks really it it does outweigh the profit potential so whatever you choose to trade just make sure you're managing your risk now let's talk a little bit more about um the companies so why is it that we continue to see Chinese companies being used in these pumpum schemes why is it always Chinese companies so it tends to be International companies predominantly Chinese they're listed on the NASDAQ and NY exchange and they have similar Underwriters and they're usually somewhat recent IPOs why International so understanding the financials of international companies is more complex and difficult than us companies different currency you got exchange rates and there's a language barrier if you're looking to do your due diligence on a US company you can call the US auditor who follows us accounting rules and who is obligated to follow us laws and you can understand what that company is doing now it's not to say that there haven't been you know huge companies in the US like Enron that have or uh Bernie maid off that have managed to do crazy things under the radar but for the most part us companies are held to a pretty high standard and you have resources to actually do your due diligence but with a lot of international companies especially small companies when there's a language barrier you may not be able to even get on the phone with the operators of the company or the uh Auditors or the tax authorities to find out whether or not the numbers that are being put out there are a little fuzzy or if they're real now some of these companies are completely legit and the company is just being used unwittingly unknowingly as a vehicle for these schemes now in other cases the companies may be complicit and I don't know I don't there's no way for me to know which one is which until at the end of the day you know Regulators I don't know come to some conclusion and you know do an investigation so in the meantime you have to presume that they're all innocent and they don't know what's going on and that it's just these criminal organizations they're using the company as a vehicle but I think that there is a reason that they're choosing these International companies right there's got to be there's got to be more to it so then we look at the underwriters uh for these companies now when a company wants to become publicly traded if I want Warrior trading to become publicly traded just for instance I can't just go and be like hey NASDAQ can you just sell my shares you need an intermediary and the intermediary is an investment bank that you go to and the Investment Bank does the underwriting where they do the due diligence on your company they audit they'll get the audits they'll get your financials the business model the business strength everything else and they actually buy the shares from you and you get the money from the underwriter and the underwriter turns around and sells those shares on the market and they stand to profit or lose if they didn't price your shares correctly now sometimes when you have a stock where the underwriter prices it low then the company only gets let's say $5 a share from the IPO but then when the price actually starts trading it's trading at 10 it's like oh man the company got short changed on that the underwriter did well right and some of the institutions that got in at a low price did well insiders I suppose that didn't sell um you know can do well but anyway so the first step is the company has to contact an underwriter and so the investment bank which is the underwriter does their due diligence they then buy the shares from the company proceeds go to the company and the Investment Bank resells those shares on the public market now most of the investment banks will get a warrant or an option to buy uh their own shares of the company that they can also sell so they get a commission for bringing the company to the public market it's like 5% it's higher in small caps than on large caps but in in like a large cap company it's four to 8% and then they also get the option to buy shares which they can then sell on the open market now whether there's a lockout period or not that's going to depend on the terms of the offering a lockout period is when you have the IPO date IPO date here and then for 90 days usually it's 90 days insiders and people uh that sometimes got these warrants can't sell so they have to wait 90 days to show they really believe in the company and then they can sell so if the price goes up but usually what happens at day 90 boom usually it drops so this is very common with IPOs you get the IPO 90 days and then they drop which is fine they often recover after that if it's a good company but with a lot of these small cap IPOs well that's not always the case so so the underwriters um when when you think about you know I don't know like Airbnb or you know Facebook or Tesla or you know these big companies when they IPO it's like Morgan Stanley Goldman Sachs UBS City Group you know these big big Banks of course we already heard from our friend over at um what was it uh he was at uh Morgan Stanley so you know I mean no banks are perfect we know these big Banks you know have their share of issues but but nonetheless they've been around for a long time and and they they're going to hold most of the companies that they IPO to pretty high standard but usually the small caps they get ipoed by sort of small boutique broker dealers investment bankers who cater to this area of the market and some of these smaller broker dealers kind of have a track record of iping really lowquality companies and I say low quality based on you know well let's look at their track record so let's just say let's go back to this so EJ just for instance so these are some of the recent IPOs so if you look at EJ I'll just pull up the chart on this um EJ this stock if we look at the daily chart it's it's unbelievable I mean it just keeps dropping it's like there's no floor it just goes lower and lower and lower and lower and lower so then you're like who's the Investment Bank that you know thought this company I mean look I mean there they're trying to make money just like every other bank so if a company wants to go public they'll bring them in the public market and then it's the company's job you know not to suck and I guess people don't think EJ is so great because the price it just keeps dropping but anyway so let's look at the underwriter for EJ so the way we find that out is we can actually go into um bam SEC this is I like using this platform um I'm not an affiliate if you want to use it you can use it if you don't if you use something else you can use something else but EJ so I look at this the ticker and then I look at the prospectus and registrations and I usually go back to the initial offering and this is a foreign uh company so uh it's in China of course so then what I usually do is I'll look for uh I'll do a keyword search for underwriter and um you can see the underwriters warrants so they got warrants um well actually there's nothing listed here on this one so uh no no they do have they do have warrants so anyways but unfortunately in this case it there's a lot of um it uses underwriter quite a bit this looks like the name of the company so then most of the underwriters are in LLC so I'll just type in LLC and then here we go underwriter Joseph stone Capital so Joseph stone Capital was the underwriter for EJ so then I say all right well that's not been a particularly good IPO so let's go ahead and just look at other companies that this um underwriter has been the underwriter for and when I do that all of a sudden we have the list EJ MSS so then you know let's look at the daily chart on Mss just out of curiosity MSS so MSS um you know okay there's that liquidation event right that's the dump so this was a stock that was probably used as a vehicle for a pump and dump when you look at that when you look at that candle that's the that's a pretty safe conclusion based on what we've seen from these WhatsApp scammers they also did chsn so chsn was Joseph stone Capital so so then let's see G GV GV is a NASDAQ listed company so GV we check that one and what you'll notice is that you're going to see a pattern where you know a lot of these are and I'll just I'll close these all out just so we can be full on The Daily so you'll notice that a lot of these are going to have sort of that similar chart all right so I'm going to just go to auto and yep it's another it's another pretty pretty ugly chart all right so what else do they have um btbt bit digital this is in the Bitcoin space btbt so let's look at this one this one not great um not as bad as some of the others so you know that one could be could be okay um let's see mfi we look at mfi and so then if you're sitting down and you're thinking all right U that's a pretty bad one liquidation event there so then you're looking at some of these and you're thinking geez um cctg all right right so we we already know about cctg we saw that one on at the very beginning of this class cctg was the one that um I got the the text for so that's that was the liquidation so you know you kind of notice this pattern um this is another one prime number Capital mhua so we can look at mhua this is a different underwriter and you know these are these are companies underwriting small cap stocks and some of these small cap stocks end up not doing so well now they're in a higher risk area of the market uh this is this they did ZJ yl so ZJ yl we've already looked at that one I'll show you the latest chart so you know this area of the market well you know what goes up comes back down I mean you can it depends on how pessimistic you your outlook is um OMH I remember that one so OMH okay so you know another kind of liquidation event there on this one then you've got Spartan they did um Sul that's one that we noticed we did they had PS EC they've had a few others cclp ivp mobq a lot of these are pretty unattractive charts so I I suppose if you're going to be fair um probably any underwriter primarily doing small caps is going to have a similarly low track record because a lot of these small caps don't end up doing really well over time Univest um Univest Securities is another underwriter for small caps sln not all of these are Chinese some of these are just small cap stocks that you know have kind of had their day in the spotlight and then have come back down but some of them are um you know particularly bad BT I remember that one sfwl elab LCN I mean there's a lot of familiar names on this list now the thing is um you know if you're looking at a stock and you're starting to ask you know is this a stock that has a high likelihood Ood of you know the company being used as a vehicle for a pump and dump the question that I'm going to ask is you know number one is it a somewhat recent IPO is it a Chinese or International Company because if it is for those two things then you've got a higher likelihood that this could be involved in a pump and dump if it's not either of those two things then you're in better shape um and still not totally out of the woods and ultimately you know you can search on social media and try to find out on you know just searching on Twitter for the ticker name and WhatsApp to see if other people are posting that they've been getting these WhatsApp messages you can ask people of course in our chat room if if anyone knows sometimes they do sometimes they don't so I think at the end of the day the end of the day it comes down to managing risk can you manage your risk you want to trade volatility you want to capitalize on the opportunities but you don't want to overstay your welcome and you want to make sure you know when to get out and you don't want to be caught holding the back we've got a lot of stuff going on in the market right now we've got the naked Short Selling you know we've seen what some of these hedge funds do where they push the price higher only to fade it back down and the real volume comes in we're now seeing the WhatsApp scammers doing the same thing so I think in general right now you have to approach trading some of these stocks with a bit of skepticism and I hope that the biggest lesson for you here is to always know your stop to know how to bail out of the trade and do not be a bag holder on these stocks if they start dropping the way I approach it is I cut my losses I got to be ruthless I got to cut my losses I got to get out I do not want to overstay my welcome it's just not worth it there will always be another trade around the corner so I just cut my loss and move on but if I'm focusing on trading the front side of the move when the macd is positive you know that's the area where I'm finding the most success and if it happens to be a stock like uh chsn today that later I found out was part of a pump and dump then it's like well man I you know I didn't know that at the time but it doesn't change the fact that the technicals support the trade I just had to know where's my exit now when you're actually watching some of these trades you'll notice some funny stuff on the level two sometimes right you'll notice some big sellers some big buyers that are kind of trying to encourage people to get in and then they pull the order when I start seeing that type of action or I start seeing Jack knives then I'll just stop trading the stock entirely because at that point I recognize I can't manage my risk and if I can't manage my risk doesn't matter how much I could make you always have to think about your downside risk first because after all trading is risky and you know what these moves some of them are creating a lot of volatility there's definitely some opportunity here but just make sure you're thinking about your risk when you're taking these trades if you found this episode helpful I hope you hit the thumbs up I hope you subscribe the channel for more episodes about trading strategy just like this and I'll see you for the next one real soon I'll remind you as always trading's risky my results aren't typical so manage your risk take it slow and we'll see you back here real soon