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Pumping: what it is and what to do
The unregulated nature of the cryptocurrency market allows crypto traders to engage in so-called “pump and dump” schemes, i.e. buying up and selling off cryptocurrencies on a large-scale.
What does “pump and dump” mean in simple terms?
A pump (pumping) looks like a sharp increase in a cryptocurrency’s exchange rate. At some point, after the coin has reached a very high price relative to the beginning of the pump, the price of the coin falls sharply. This is called dumping, or a dump.
A pump and dump can be orchestrated by even one user on a single exchange if he or she has enough money to start mass buying followed by a massive sell-off.
But, of course, truly large-scale pumps are organized by groups of traders who coordinate their actions in advance and start manipulating the market at a specific time. The current “gathering place” for pumpers is social networks, where they special groups that coordinate their actions before and during a pumping / dumping operation.
Pumping is planned in advance and follows as scheme like this:
– “Positive” news, whether fabricated or overblown, is published on informational websites;
– Everything possible is done to bolster potential investors’ interest in the breaking news;
– More and more inexperienced traders are brought in;
– The novices’ hopes of price growth are stoked.
How to recognize pumping
The start of pumping can be easily seen on a particular cryptocurrency exchange based on users’ activity in the local chatroom. Experienced traders start telling unbelievable stories about how the coin rate is growing and is about to start growing even faster, and that you need to buy it as soon as possible.
Before the pump, traders push cryptocurrency price so high that inexperienced players do not believe it might fall, so they continue to buy as the exchange rate rises. At some point, the pumpers stop buying, but inexperienced traders continue. Then the pumpers sell everything at a high price, and the exchange rate goes down. Then, inexperienced traders panic and sell what they bought. Thus, pumping “victims” buy high and sell low. Meanwhile, the pumpers make a profit.
Follow the rules!
Inexperienced trader don’t have to lose money during pumping if they follow a few rules.
– Don’t buy coins if the rate has instantly increased by more than 20%.
– Don’t sell coins after there has been a brief price surge followed by a decline or contraction, since it will likely be followed by growth.
– Don’t believe sensational news, especially if traders are spreading it in chatrooms.
– And, of course, don’t use all your savings to buy coins when the price rises.
In any case, whether or not pumping is happening, cryptocurrency trading requires caution, experience, and common sense. So consider each step carefully. We wish you successful trades and profitable investments!