Why you get Pumped & Dumped in a Stock

First of all I will start with the definition from Wikipedia:

"Pump and dump" is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme "dump" their overvalued shares, the price falls and investors lose their money. Stocks that are the subject of pump-and-dump schemes are sometimes called "chop stocks".

While fraudsters in the past relied on cold calls, the Internet now offers a cheaper and easier way of reaching large numbers of potential investors.

Read more... http://en.wikipedia.org/wiki/Pump_and_dump

This is how the morning may go... You wake up in the morning and start going through emails, checking forum boards and watching stock chat rooms.  You see the hype that a stock campaign has put out there all over the internet.  You think, hmmm, that sounds good.  People forget, the reason a stock is being promoted is because ALWAYS somebody has shares to sell.  Lesson 1 - NEVER forget someone wants to make money off you.  Lesson 2 - Don't forget to do your due diligence. 

I have seen it time and time again.  People forget Lesson 1 and 2.  Then they forget to find their exit... ALWAYS look for the door out before you enter a stock.  If you want 20%, look to see if their is potential.  Then I see people chase a stock PPS at the open.  HUGE mistake!!!  This could trap you in a stock price too high that can spiral down when they start diluting.  This is what the stock world calls holding the bag or Bag holders.  I know, because in the beginning, I did it too.  A very expensive lesson to learn. Don't hold, set your stop loss and move on.

Most times the stock price was artificially inflated by front loading the stock to paint a pretty chart.

Interesting enough is that the person who was selling the stock in the first place came back around and may have bought the stock at the lower price.

So buyer beware.  I will continue this subject at another time.  Hope you are all having a great week.