Getting Rid Of Spammy 301 Links From An Old Site
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If these domains are completely useless to you otherwise, disavowing will help remove the links from your link profile.
Disavow is no longer a last resort, it's part of the job. Sending in a disavow report isn't going to call attention to you: the spammy links and penalty are already doing a good job of that

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Thanks William. My concern is that too many of the links from the old domain were over optimized and contained too many keywords associated to the field I'm in, and are doing more harm than good. I have mixed filling about the disavow tool at this point because it sound too good to be true. I'm kind of suspicious G would let me choose the link I want to loose, but at the same time allow me to keep the ones I want.
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You have 3 options for the website.
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Do nothing and hope links go away.
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Keep the 301s in place.
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Disavow them.
You know Google has already spotted your site and hit it, so keeping the 301s isn't an option. Doing nothing has unknown results and hasn't worked for you so far. That only leaves one option, unless you want to start from scratch.
I'm of the mindset that Google sees it as cleaning things up. Just because you submit the disavow doesn't mean you created the need for it, so why would Google see it as a bad thing?
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I'm going to suggest something a bit unusual but I like to think outside the box.
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Put the 301s back in place - but to another site.
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Get those 301s indexed and
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ping the crap out of them (try pingfarm.com) and then once they go to the new site (and google sees that) they'll be off the good site.
At that point you can do whatever with the 301s - let them go. Just point them to a random tumblr site or something for now.
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Hi there,
I'm going to disagree that this is a Panda issue unless those links + 301s were creating duplication, loops etc. on your site. If I'm reading this correctly, your problem is links from bad sites pointing to your site, albeit through 301 redirects - Panda deals with on-site issues and Penguin / manual penalties with off-site. Is this the issue, or are there on-site issues that this has created? Keep in mind that a drop in rankings that coincides with a Panda update isn't necessarily because of the Panda update.
As far as removing the effects of the bad links goes, sending bad-quality inbound links to 404 or 410 pages should remove them from consideration as far as Google's view of your backlink profile is concerned. That is, an inbound link pointing to yoursite.com/page.html where /page.html returns a 404 or 410 should ensure that that link doesn't hurt you. If, however, you are still concerned, go ahead and submit a disavow file with these links included.
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Very provocative idea, Matt-Antonino, and that's certainly a creative option. What about if I just pinged all the old 301 links to the old url?
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Thanks for the 404 advise, but I do think the drop is ranking is due to an automatic algorithm penalty that's the result of too many external links the have exact keyword matches to areas this site is competing in. For example the ratio "Free White Widgets" on external links, to the actual url and in site links is tripping this automatic penalty. By breaking these links, I how hope G will un-index, thus lowering the ratio.
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I understand your concern, and in that light I would file the disavowal, but even very poor-quality, over-optimised links that point to your domain should not incur a penalty if the pages they link to are 404s or 410s. All the same, I obviously can't guarantee this so the disavowal would be a good move.
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Matt-Antonio suggested I send the 301's to a different site, which I thought was very provocative, though a bit risky. Your suggestion of re-writing the 301 so it points to a non-existent page on the new site creating a 404, should work as well. Now if I combine both of your suggestions,...why not just send the 301's on the old site, to a non-existing page on the old site, letting the old site produce the 404?
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A 401 is 'unauthorized' - is that the code it would produce, or a different error (or a typo!)?
That could work in theory - I'd be a bit hesitant about the extra step involved in 301ing to get to an error page on a different site. In general, the fewer steps you make Google go through, the better. This method would mean that your new site should not be "credited" with the bad links, however.