The cryptocurrency market is very volatile and some cryptocurrencies experience sharp spikes of 1000% and more in a day. But they all come to naught or very little in the end. It is called a pump on the market slang.
Here are several indicative traits that can help you to identify a pump and distinguish it from an uptrend.
- No fundamental reasons
The absence of any objective reasons for the growth of a token while it still shows impetuous growth is a very standard sign of a pump. On developed markets sharp quote moves often happen when some important political or economic statement is made or something important happens, which is the opposite of information vacuum of a pump.
When a pump occurs it means that a small group of people influence the market regardless of all fundamental factors. So, check the news briefly, if you see there is starting to form a rapid rise on a coin’s chart, before opening a buy order. It will not make you miss a trend.
- Candlestick with a long upper shadow and small body
The nature of a pump is in a sharp rapid growth that subsides very fast and changes for an equally sharp fall. On the daily timeframe that is usually characterised by a candlestick with a very long upper shadow and a relatively small real body. The body usually remains bullish but very small.
- Low capitalisation
Pumps on the cryptocurrency market often happen to low capitalisation assets. They are easier to manipulate because the volume of each order is bigger in relation to an asset of a smaller capitalisation than in relation to one with a bigger market cap. Thus every order is more impactful on the asset with a lower capitalisation.
It you look at the price moves of hundreds and thousands of percent over the interval of 24 hours to seven days, you will see that they rarely exceed $10 million.
On the screenshot is demonstrative data of the trade of BaaSid on the upper line and of Mindexcoin on the lower line taken from CoinMarketCap on September 13, 2018. As you can see, 24 hours’ trade volumes are quite ridiculously low whereas the coins were able to add 96% and 82,5%.
How is an uptrend different?
The uptrend is usually the opposite of a pump in both fundamental and technical respects. Here are some common features of an uptrend:
Positive fundamental background;
Highs and lows alternate in an even ascension forming a channel (4h to daily timeframes);
High trade volumes;
Technical support level off which a trend starts its move.
We hope you will find this material useful.