Like the stock market days of old, lack of regulation in cryptocurrency has led to rampant market manipulation from the “evil market makers” mentioned in a previous article written by Sectio Aurea to the more common (and less clever) pump and dumpers. Although I can’t personally condone being part of these “pump and dumps” as I believe they take away from the legitimacy of cryptocurrency, Wallstreetcrypto’s first priority is its readers, and if you are going to “pump and dump” we’d like you to know how to do it safely.
What is a “Pump and Dump”?
A “pump and dump” is a market manipulation technique employed to rapidly inflate prices in a particular market for the purposes of later “dumping” your shares at the inflated rate, often returning very large returns without having to use traditional analysis. The technique relies largely on psychological manipulation of investors. Worthless assets are made to seem valuable through a simulated “group think” mechanism achieved by spamming typical outlets of investor communication with false information. In addition “pump and dumpers” will often use very large portions of there own funds to stimulate the markets they have targeted early on. The technique isn’t even remotely new and was famously utilized by early 20th century stock market traders like J.P. Morgan , and more recently during the “Dot-com bubble” by 15 year old Jonathan Lebed who manipulated assets in ways extraordinarily similar to modern pump and dumpers in cryptocurrency markets.
What You Should Know Before “Pump and Dumping”
Despite what the leaders of many of the pump and dump channels on twitter say, pump and dumping is not a group effort. It’s a game of Russian roulette, and the only ones guaranteed to win are the leaders. Join these pump and dumps at your own risk. The gains can be massive and tempting so I don’t blame traders for trying to take advantage of them, a popular pump and dumper going by the alias Fontas once managed to inflate the Terracoin market on BTC-e 417% in less then a half hour before dumping. For the winners this was obviously a massive gain, but for the losers it was a different story.
Now that we’ve established the risks, its time to establish some ground rules for how to minimize them.
First, don’t gamble your life savings on a pump and dump. I know quadrupling your net worth in fifteen minutes is a tempting proposition but its not a realistic goal. Take a real honest look at what you have invested, and when you decide what you want to put into a pump and dump evaluate how much of what you have you can afford to lose, and when I mean afford to lose I mean absolutely expunge from your assets, zero, zippo, nada, non-existent. This is about how much you should expect to put into pump and dumps.
Second, don’t rely on twitter channels for when to join the pumps. Leaders of these pump and dumps vary in their reliability but assume their all liars and you’ll be much better off for it. Channels like CryptoPumps, and MegaCoinPumper have been known to announce the market they’re supposedly pumping while they’re dumping. To traders not on the inside this means zero chance of profiting off the pump in any way, and likely extreme losses immediately. Fontas seems to be the most reliable, there’s evidence that he is heavily invested in the market he pumps long before announcing the market publicly, but in most cases I’ve seen the market continues to see gains for a fair amount of time after he goes public. The best way to make sure you profit from these pumps is to invest small amounts into every market before any pump is even announced, then sell shortly after the pump has begun.
Third, know your exit. Being greedy in a pump will almost guarantee you get burned, remember its a game of Russian roulette and you never know when that bullet is going to show up. Some pumps last hours, even days, other last minutes. The goal isn’t to make every bit of what you could have possibly made, its to make money and get out. Prior to the pump you should already have an idea of how much you want to make before you exit your position. Reasonable expectations are around 5-10%, riskier ones would be around 20%. When I try to take advantage of a pump I usually do a graduated exit; I sell off 50% of what I have invested at 5%, 25% of what I have at 10%, 12.5% of what I have at 15%, and the rest if the pump ever reaches 20% inflation.
Fourth, if you lost you might not have actually lost. Patience is a virtue, especially when it looks like you’ve been burned by a pump. Pumpers are creatures of habit and like to target the same currencies over and over, sometimes pumping the same market two or three times in a day. If you have a fairly good entry, and it looks like the pump is over you could just call it a loss and sell, but I’d recommend just sitting on the funds. If you obeyed the first rule, you haven’t put anything in you can’t afford to lose, so just sit on the founds for a couple of days, put in a profitable limit order and just wait. Odds are they’ll come back, pump that same currency all over again, and you can still exit at a profit.
Pump and dumping isn’t for the faint of heart, it’s risky business and I would strongly recommend making your money the old fashioned way. Learn something about technical analysis, subscribe to our twitter channel, make informed and prudent investment decisions, but hell that all sounds so boring. I can’t honestly say I don’t enjoy the adrenaline rush of a pump and dump every now and then, but realize that pump and dumping isn’t trading, its gambling. If you ever want to call yourself a real trader you have to truly take that fact to heart. The reason I prefer trading is because I have a reliable system, I can expect to make a certain amount every day if you put all your funds into pump and dumping even if you’ve been successful one day your bullet is going to come up, and everything you’ve gained will count for nothing.