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Finding the best stock picks—those that make money—is the goal of every stock market trader.

However, some traders recognize that we are all looking for the best stock picks, and resort to duping other traders with pump and dump schemes to make their living. Rather than following pump and dump hype, learn to find real trade opportunities instead.

Also, check my Penny Blog at the top of the navigation chart on left for daily updates on what is hot.

Traders fall for pump and dump schemes because they allow their emotions to displace thinking. And this is especially true in the penny stock market.

Which raises the question, “Why in the world would anybody volunteer to trade in the penny stock market?”

The allure of trading in the penny stock market can be reduced to one simple concept…

…the potential to see your investment double overnight.

While an investment in a blue chip stock represents relative safety, in order to create wealth, many investors must look towards investment instruments with much higher rates of return. For some of us, this means trading in penny stocks.

For example, the Standard and Poor’s S&P 500 Index averages a 12% per annum return on investment (ROI). With that, your $1,000 investment would become $1,120 in about 12 months. That may pay the light bill for one month, but it will not make you wealthy, or change your life.

Interesting article on how your trading profits may be impacted by capital gains taxes in 2008.

Are the blue chips the best stock picks for your financial goals?

Many penny stocks trade for as low as .0001 cent per share. This in itself does not make it a great buy, as share structure and the company’s potential to thrive are also important. However, it is much easier for a penny stock trading at this level to double overnight, than it is for a blue chip stock trading between $50-100 to double in the same time period.

In late February 2008 Heritage Capital Credit Corporation (Symbol HCPC.PK) traded at .0001. A $1,000 investment in this company would have bought you 10 million shares. Following some developments in its business model, HCPC share prices moved up to .0004 in the first week of March, before settling back down to .0003. Your $1,000 investment on 3 March 2008 would have been worth $4,000 on 4 March 2008. Be advised, this stock may no longer represent a good trade opportunity. I mention it as an example only.

I mention this stock for illustrative purposes only to prove a point. Percentage increases in the penny stock market of 100-200% within a 24-hour period are somewhat common.

And, that traders, is the power of trading in penny stocks.

Beware The Pump and Dump

With this kind of volatility it is only natural that the penny stock market would fall victim to scam artists and “less than ethical” traders. Allof whom have their own ideas about the best stock picks for you.

One of the favorite ploys used by these traders is the pump and dump scheme. Basically it works like this: dump on a stock via newsletters, emails, forums, and even false press releases until the stock price drops to a point where you can buy in cheap. Immediately after buying into the stock, start your pump campaign by talking the stock up in the same areas where you just slammed it.

Traders have short memories and generally won’t connect you to the previous dumping (aka, bashing) campaign. Once you have pumped the stock price up to a comfortable profit level, sell the stock. Rinse and repeat.

Please don’t think I condone this practice. In my opinion you do not have to practice a pump and dump scheme to make money in penny stock trading.

A penny stock trader who uses pump and dump schemes is trying to force price changes favorable to his or her trade strategy.

On the other hand, ethical penny stock traders figure out what is going to happen to a stock’s price—then arrange their trades in such a way to be there when it does. The key to successful trading then becomes learning how to consistently, “figure out what is going to happen to a stock’s share price.”

· No pump and dump games

· No midnight fax blasts

· No email spam campaigns

· No chat room flaming

If you’re interested in finding trading ideas, you may want to read about a pretty amazing product that can help you manage your penny stock day trading strategy. This system is designed to trade in the volatile penny stock market where stocks can increase 400% in a matter of minutes. Click here for more details.

There are numerous forums, message groups, and chatrooms that focus on penny stock investing. The best and most active that I have found is Investorshub. This is a very active message board, with tons of ideas. You can check it out by clicking here.

Avoid becoming a victim to a pump and dump scheme.

Never let your emotions, such as greed and hope, distract you from making deliberate decisions about your trades, based on solid research and facts.

Again, the key to making the best stock picks depends on solid research, not hype. Beware of the pump and dump, and always remember, stocks that go up on nothing but air crash back down just as fast.

The best stock picks begin with solid research. Click here to visit my Research page