The crypto market is still relatively new, and its decentralized nature makes it almost impossible to regulate. If you are not new in the market, you will already be familiar with numerous stories about manipulations, tactics.
Identifying manipulation tactics is one of the most challenging tasks in trading; it is normal not to identify these tactics because these manipulators are masters of their craft, but there are strategies you can use to avoid falling prey. Here are some of the three manipulation tactics and how to avoid them.
Crypto Market Manipulation Tactics
Fake News
This strategy is as old as the investment itself. The idea is to deceive investors with fake information to woo them to buy a product that is not worth the hype.
Many media platforms and social media influencers are guilty of spreading fake news about a cryptocurrency to make it look more enticing to investors. Before you fall for any news you see, have a second thought and take a few moments to verify the source of the news before you take any action. Those few minutes spent verifying this news will go a long way in saving you from making mistakes.
The Pump-And-Dump Strategy
This is simply boosting the price of a security or stock by giving fake recommendations. All the manipulators need to do is give misleading, false, and grossly exaggerated information and unsuspecting investors will fall prey.
Statistics show that many investors are victims of this dubious strategy; over 40% of cryptocurrencies have witnessed this strategy.
Here is how it is done; several retail investors will buy the huge number of crypto. This is called ‘pump.’ When there is a pump, the price and volume of the crypto will naturally spike. This will entice investors; once they become committed, the retailer will sell their crypto, making a profit in between.
Once you see the price of a particular crypto skyrocketing without a justifiable reason, be very mindful of buying because there’s a good chance it might just be a pump. If you are ready to take the risk, you can profit from the pump and dump by trading with the flow.
Once you notice a pump trade in the same direction as the pump promoters and dump as soon as they dump, this will give you guaranteed profit.
Spoofing The Tape
This strategy is also called layering; it is a move by manipulators who place orders without the intention of fulfilling those orders. This is a trap because when other investors see these large orders, they assume a whale is about to buy or sell the crypto at that price. The unsuspecting investor then places an order at that price.
Now before the market trade at that manipulated price, the manipulators pull out from the trade. As a result, the market would naturally drop, leading to enormous losses for other investors who are unfortunate to fall victim to this tactic.
The best way to avoid spoofing is by avoiding short-term trading, except if you are skilled enough to navigate your way through.
Wash Trading
The wash and trade tactic is easy to spot; it is one where manipulators buy and sell crypto repeatedly and instantaneously to increase the overall trade volume. This will woo traders to buy when they see a spiked volume. These transactions are generally carried out on closed platforms like bitcoin-code.io.
Main Takeaways
The crypto market is vulnerable to manipulation, no thanks to the unregulated market. These manipulators can cause investors to lose their money, so you always have to step ahead of them every time. Once you spot manipulation tactics, you can either run away from investing or trading with the flow and make your profit.
