Shorting Obvious Pump and Dump Penny Stocks
Shorting penny stocks is very risky.  For example, read this investopedia article, which explains some of the problems.  In general: If you have some sort of method for perfectly identifying Pump and Dump schemes, it's possible you could make money if you time things right, but that timing is going to be very difficult to identify. Assuming you have no non-public material information, it should be perfectly legal. I suspect it's not a great idea for the reasons that Joe outlined, but it should be legal.
"Investing is not the same as illegal drugs.  One does not start with pot and progress to things like heroin in order to get a better high.  Penny stocks are a fools game and not an entry into the world of investing. The charts you mentioned are fake and likely the result of pump and dump schemes as my colleagues have pointed out in the comments.  They have no bearing on investing.  Good investment grade companies have many peaks and valleys over time.  Look at any company you are familiar with Apple, Google, Tesla, GE, Microsoft, etc... One has a few choices in getting ""into investing"" to name a few: All of those are valid and worthy pursuits.  Read books by Jack Bogle." There is a misunderstanding somewhere that your question didn't illuminate. You should have lost $0.04 as you say. Assuming the prices are correct the missing $0.02 aren't covered by a reasonable interpretations of the Robinhood fees schedule. For US-listed stocks: $0 plus SEC fees: 0.00221% of principal ($22.10 per $1,000,000 of principal) plus Trading Activity Fee: $0.000119/share rounded to nearest penny plus short/long term capital gains taxes The total fee rate is 0.002329% or 0.00002329*the price of the trade. With you trades totaling around $11, the fee would be ~0.000256 or ~1/40 of a penny.  The answer is probably that they charge $0.01 for any fraction of a penny. It's difficult to explain as anything other than avarice, so I won't try. I'll mirror what the others have said in that your expectations for returns are wildly out of line with reality. If you could achieve that with only moderate risk hopefully you can see that you could ladder those returns by re-investing them and become a billionaire in short order. You may have noticed that there are a lot of really financially savvy people who are not billionaires. So the math for your plan falls apart somewhere, obviously. However, in the spirit of being helpful, and with the caveat that super high returns involve super high risk I'll try and point you in the direction where this is theoretically possible, even if the odds would be better buying lottery tickets. One way to get more leverage from your money than just buying stocks is to buy options. With an options strategy your return/loss will be magnified greatly compared to buying stocks. That is, you can lose or gain a much higher multiplier of your original investment. That said, I don't advise doing that with any money that you can't afford to lose every penny of, because you likely will. Consider firstly that they're penny stocks for a reason - the company just isn't worth much. Yes, it could take off but this happenstance is rarer than you think. Next, there is the problem of how you'd find out what the good stocks to invest in are. Here in the UK, reliable news about stocks outside the FTSE indexes (AIM) is hard to come by. Also consider than there isn't the supply and demand for these stocks in the same way as there is in the main indexes. Even if you were to make a tidy profit over time, you might lose what you made in the delay selling the stock. Start-ups also have the problem of poor cash reserves so new employees are often given stock options in lieu of cash which further depresses the share price. I read a report once that said that only 1 in 10 penny shares yields a worthwhile return. I just don't like these odds so I tend to avoid. This is a snapshot of the Jan '17 puts for XBI, the biotech index.  The current price is $65.73. You can see that even the puts far out of the money are costly. The $40 put, if you get a fill at $3, means a 10X return if the index drops to $10. A 70X return for a mild, cyclic, drop isn't likely to happen.  Sharing youtube links is an awful way to ask a question. The first was far too long to waste my time. The second was a reasonable 5 minutes, but with no example, only vague references to using puts to protect you in bad years.  Proper asset allocation is more appropriate for the typical investor than any intricate option-based hedging strategy. I've successfully used option strategies on the up side, multiplying the returns on rising stocks, but have never been comfortable creating a series of puts to hit the jackpot in an awful year. "As ChrisInEdmonton describes, shorting has an asymmetric risk/reward ratio. And put options have a time cost, if you think the market is overvalued and buy lots of puts, but they expire before the market finally corrects, you can lose your entire investment.  Betting on market timing of any kind is extremely difficult to do, some would argue it's impossible. ""The market can remain irrational longer than you can remain solvent"" is a favorite wall street trader saying. Instead of playing a game that's difficult to win, the better option is to play one you can win. That's to learn how to value individual investments well and accumulate cash until you can find investments that are under-valued to invest in. The best way to learn to value investments is to read Graham and Buffett. ""The Intelligent Investor"" is a good starting point, and you can read all of Buffett's investor letters for the last 30 years + for free on the Berkshire Hathaway web site. Finally the textbook on valuing stocks and other investments is ""Securities Analysis"" the 6th edition is only version to get, it was updated with Buffett and other leading value investors oversight. A basic overview of valuing investments is that every investment has an ""intrinsic value"" consisting of it's future cash flows, discounted for the time it takes to receive them. The skill is being able to estimate how likely those cash flows are to happen. a) Is it a good business? Does it have a moat, i.e. barriers that make it hard for competitors to duplicate it? b) Will management invest or distribute those cash flows wisely? Then your strategy is to not even worry about the market, spend your time looking at individual stocks and investments and wait until some come along that's well undervalued. That may be during a market correction, or it may be tomorrow. And it's not just good enough to intelligently value your investments, you also have to have psychological fortitude to not panic and to think for yourself. Buffett describes it best. Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him. Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. Lastly learning to value investments isn't just useful in the stock market, they are applicable to investing in any investment such as bonds, real estate, and even buying your home or running a business." This is a gross simplification as there are a few different ways to do this. The principle overall is the same though. To short a stock, you borrow X shares from a third party and sell them at the current price. You now owe the lender X shares but have the proceeds from the sale. If the share price falls you can buy back those shares at the new lower price, return them to the lender and pocket the difference. The risk comes when the share price goes the other way, you now owe the lender the new value of the shares, so have to find some way to cover the difference. This happened a while back when Porsche made a fortune buying shares in Volkswagen from short sellers, and the price unexpectedly rose. The Art of Short Selling by Kathryn Stanley providers for many case studies about what kind of opportunities to look for from a fundamental analysis perspective. Typically things you can look for are financing terms that are not very favorable (expensive interest payments) as well as other constrictions on cash flow, arbitrary decisions by management (poor management), and dilution that doesn't make sense (usually another product of poor management). From a quantitative analysis perspective, you can gain insight by looking at the credit default swap rate history, if the company is listed in that market. The things that affect a CDS spread are different than what immediately affects share prices. Some market participants trade DOOMs over Credit Default Swaps, when they are betting on a company's insolvency. But looking at large trades in the options market isn't indicative of anything on its own, but you can use that information to help confirm your opinion. You can certainly jump on a trend using bad headlines, but typically by the time it is headline news, the majority of the downward move in the share price has already happened, or the stock opened lower because the news came outside of market hours. You have to factor in the short interest of the company, if the short interest is high then it will be very easy to squeeze the shorts resulting in a rally of share prices, the opposite of what you want. A short squeeze doesn't change the fundamental or quantitative reasons you wanted to short. The technical analysis should only be used to help you decide your entry and exit price ranges amongst an otherwise random walk. The technical rules you created sound like something a very basic program or stock screener might be able to follow, but it doesn't tell you anything, you will have to do research in the company's public filings yourself.