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Author Topic: Market Manipulation 101  (Read 121 times)
Trofo
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June 06, 2018, 08:27:41 PM
Merited by rekinthis (2), Daniel91 (1), ljudotina (1), tuvok007 (1), Jet Cash (1), Branko (1), slackovic (1), RegulusHr (1), denis-z12 (1)
 #1

The purpose of following post is not to teach you how to manipulate the markets. It is intended as a short guide to let you know what kind of market manipulations are often seen in crypto investing. This post is heavily inspired by the video from DataDash (popular crypto youtuber, very down to earth guy and I would recommend that all of you try to watch some of his videos). I watched the video few weeks ago and it opened my eyes regarding some types of market manipulations. If somebody would like me to add something all you have potted some mistake, please let me know. So let us begin:

Market Manipulation 101 (for beginners)

1. Pump & Dump - P&D
This is very common method of market manipulation which targets smallest and weakest investors (often newbies).  
It consists of following steps:
a) A pump group chooses a coin and starts buying (manipulators)
b) New investors (outside of the p&d group) buy because of increased price and volume and create exit point for the first group
c) Coin crashes and newbies are left with bags of shit coin

It is important to mention that P&D is considered illegal activity in both traditional and cypto markets. Furthermore even if you are part of such P&D group keep in mind that this things have hierarchy to them. Meaning higher levels are guaranteed best margins and sure exit points while lower levels lose much of the gains due to latency of information passage. P&D groups can look like easy way to earn some quick money for greedy investors but I can't stress enough that you should avoid them at all costs. If you absolutely must try some P&D group do it with minimal investment and thank me afterwards.

2. Market Makers - MM
As the name suggests their job is to make a market. It works in a following way. Someone with a lot of liquidity will go and start trading chosen crypto currency back and forth. Bear in mind that this is not considered illegal activity. Function of the MM is to bring liquidity into the market that doesn't have enough volume. MM services are often used by newly launched ICO's. MM charges fees for the risk of using his capital and generates additional profit from the spread (Difference between bid and ask orders). They are serving a role and are not bad apples per default but they can leave impression that institutions are getting interested when in fact it is all fake volume. Market maker volume is usually easy to spot - it has similar volume bars in prolonged period of time.

3. Algorithms
General trading algorithms – traditional markets are dominated by bots and same will happen to crypto markets. They are basically simple programs which are run by instructions (like if XXX coin reaches YYY price buy). Biggest benefit of algorithms is that they allow users to cut out all emotions from trading and follow designated strategy without deviations and do so at high speeds.

4. Hyper-frequency trading
Similar like previous but with added bonus of doing it at high frequency to beat out other traders. Main objective is to gain info before others. All trades happen in smallest parts of one second. These traders have ultra quick connections due to location or Internet providers. They make small profit simply because they are able to react faster than anybody else when price changes. Profit looks small but this happens many times during the day and small profits can add up to considerable sum. There is not much hyper-frequency trading going on in crypto markers (when compered to traditional markets) but will probably be used more and more as new services emerge. Coinbase already offers services for Hyper-frequency traders.

5. Wash trading
Investor or two coordinated investors simultaneously buy and sell same asset. Mostly found in the exchanges to push high artificial amounts of volume to attract customers while avoiding any risk to themselves. Can be used to heavily manipulate price.

6. Spoofing
Objectives to set a bid or ask order that is not meant to ever be executed. Large investor (whale) sets a big order and provides a fake resistance or support. This can be powerful technique because it gives us the illusion that we know what the whales will do at certain key price levels. Can be seen very often on exchanges.
Above mentioned was known to me from before but it never occurred to me before watching DataDash video that it can also be used in following way. Trader sets lot of the orders and starts to cancel them. That leaves watchers with the impression that orders are being fulfilled when they are actually cancelled. Take the order book with grain of salt and understand that it can be easily manipulated by the whales.


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June 06, 2018, 11:02:19 PM
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It is really amazing, all the old school tricks that are also used in stock and derivatives and the SEC does nothing in crypto.
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June 06, 2018, 11:37:02 PM
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It is really amazing, all the old school tricks that are also used in stock and derivatives and the SEC does nothing in crypto.
LOOOOOL, all of them work on crypto, that's why the post was made.

Also a nice guide +merit
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June 07, 2018, 12:52:51 AM
 #4

Pretty obvious it's all going on right now. Every time I look at GDAX it's either up by 100 then plateau, or down by 100 and the same. Repeat.
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June 07, 2018, 04:27:07 AM
 #5

I understand now the cryptocurrency market is still tiny in comparison with others like stock, gold, forex, etc. and there's always manipulation in certain forms. Sharks and whales are typical and familiar words to us.

We the traders have to accept and adapt to the reality. When crypto market gets big enough, if ever, it will become more stable and therefore much harder to manipulate. But then, I'm afraid that we'll find less opportunity, inspiration, and fun to trade in it. People are usually more eager to follow something new, right?

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Trofo
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June 07, 2018, 04:15:13 PM
 #6

I understand now the cryptocurrency market is still tiny in comparison with others like stock, gold, forex, etc. and there's always manipulation in certain forms. Sharks and whales are typical and familiar words to us.

We the traders have to accept and adapt to the reality. When crypto market gets big enough, if ever, it will become more stable and therefore much harder to manipulate. But then, I'm afraid that we'll find less opportunity, inspiration, and fun to trade in it. People are usually more eager to follow something new, right?

Market volatility is the consequence of relatively small volume and small total crypto market cap (relative to traditional markets). When you add to the mix little or no regulation at all, you have a nice playground for whales. However, we small fishes can also make a nice profit by being careful and taking the opportunities that are presented to us. In order to minimize the risk of trading all of us should be aware of different market manipulation methods and that is why created the OP and hopefully managed to imprint some market manipulation knowledge to few newbie traders.

I thought about posting this to economics section but decided it could do more good here.


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June 12, 2018, 05:32:58 PM
 #7

Many thanks for this post. I`m new to trading and this is very interesting. So which manipulation technique is most current now in the Crypto? 
Trofo
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June 14, 2018, 08:22:40 PM
 #8

Many thanks for this post. I`m new to trading and this is very interesting. So which manipulation technique is most current now in the Crypto? 

I would say all of them, except maybe Market Makers & Hyper-frequency trading.


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June 14, 2018, 08:26:24 PM
 #9

Thanks a lot. It helps understanding many things.
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June 14, 2018, 11:04:25 PM
 #10

One of these reminds me of my coins getting stuck in an exchange because of me getting out too late. Now I have no other choice but to leave it there and wait for the next big wave. (Sigh)
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June 20, 2018, 04:37:14 PM
 #11

Interesting post. What would be your recommendation for regulators?
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June 20, 2018, 04:51:37 PM
 #12

Pump and Dump is very common in the market I no longer see it as a complicated manipulation as there are many coins with different market caps pump and dump is very easy.

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June 20, 2018, 06:33:09 PM
 #13

Many thanks for this post. I`m new to trading and this is very interesting. So which manipulation technique is most current now in the Crypto? 

My guess would be on Pump and Dump
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