We regularly get various updates from @Telegram groups about speculative coins where they tell a certain coin will be pumped in a short time and buyers can make profit during the pump.
Let me explain this step by step to you, so that even a layman can understand it clearly... (Even I am not such an experienced trader, but I know all these tactics and I stay away from them)
If you have heard about the term whales in stock market, there exists whales in crypto market also.
A quote I made: "In a marketplace, one trader has to earn and the other has to lose, thats what keeps market stable and rational"..... Think about it clearly.
These so called crypro whales manipulate people's minds and eat small fish like us in the market.
So what makes them whales?
As we know whales are huge creatures in the sea. Small fish have no existance in front of big whales, and whales can eat fish also.... :P
So these players in the market come with huge amount of money, lets say about a few million dollars to anywhere like a few Billion dollars also(rare)....
Lets say there is a coin called "abc" having a small market cap of lets say 10 million.... The price is relatively constant since the last month....
Suddenly you all get a signal from a telegram group that the coin will be pumped.
Let me break down what happens......
Crypto whales come to disrupt the market....
They have two capitals, one they use to pre pump and another huge Investment to disrupt the market.....
.....
Pre pump means just before putting huge money in the market, they put small amounts of money in the money.... Lets say about $1000-10000 in a particular coin.... That wont disrupt the market capital unless they put 1 million usd or more in a small coin.
So they plan and pre pump the coin way before the actual huge pump.....
So they put that small amount of money gradually.....
Now comes the real catch.....
Lets break down this into two parts.....
- A whale would suddenly invest all the capital and pump the money into the market, gradually, thereby increasing the market cap...... If a coin rises by more than 25-30%, it catches our attention..... People look at the percentage of rise instead of market cap and believe me this happened to me..... I invested very small and bare minimum amounts in various situations and various coins to study the market thoroughly...... And whales wait for that opportunity..... They wait..... As soon as they see new small players entering the market, they pump it a bit more.... That gains confidence of other players, and novice investors will end up investing, speculating that the coin will reach the moon..... The whale now quietly takes back the small capital that he Invested at almost 2x profit.... And it wont affect the market....
Telegram groups also spread the rumour that coin will reach the moon and so on.....
So once about 5 million is pumped, the market cap reaches 15 million.....
And all people invest in the coin..... Lets say the coin reaches 90-100% in 24 hours ...
As it rises further, suddenly u'll see a dump..... The whale exits the market, ..... So although his effective profit from the initial investment doubled, he can easily leave with a loss of 1-2% now.....
From that loss, some people could make profit, if they are lucky, else most of them will face loss.... That's due to our mind playing tricks on us, prices will rise further.... Emotion plays a major role in profit and loss.....
Whales take this opportunity ..... And believe me these telegram 'signal' groups are all paid by whales to spread the rumour.....
Summary is the whale pumps millions of $, making the coin go to the moon, people invest in it and when they are done investing, the whale dumps and exits that market....
And they are happy to exit with 5-10% of profit.... Every profit comes from the cumulative efforts of small fish like us in the market.
Now comes the second part.....
- Lets say there are no "whales" or huge players in the market.....
Telegram groups synchronise among themselves and plan a particular time for "pump and dump".....
They follow the whales' strategy....
What haopens is this, they all plan and put in very small amounts in the lets say "ABC coin"..
Now they spread in the group the particular coin will be pumped at a certain time.... (They dont disclose coin names before, so you wont know....)
The moment they announce the coin name, the coin reaches crazy levels of pump from people like us.....
Once the pump level reaches 12-13%, the groups leave with their profits quietly..... They wont even tell u when to stop pumping or anything.....
And whats more, even more novice players put money and wait, and gradually the group members also exit the market, (some at a profit, but majority at loss)
And these new players suffer the most..... They end up losing 50-60% of the investment for the greed they see on rising charts.....
This accounts for what happens in a pump and dump.
Now let me make it clear, these things used to happen in Stock market long back, but they are illegal.... So after regulations, those things have stopped.....
And I would urge everyone and steemians to stay away from these pump and dump groups unless you are super lucky or know the tactics or u have a super fast hand and mind that you can buy and sell in a second and come out with profits......
I have attached an image..... So analyse the candlesticks and chart to know what happens. I hope you will understand..... If you have any doubts, feel free to comment down and I will reply for sure..... :)
And believe me, these scams dent the Cryptocurrency image and most people wont invest because of these.... So lets all join together and make crypto trading fair.....
Lets not doom the bright future of crypto.... Only because its decentralised and no one controls it, thats why u shouldnt take advantage like that.....
And dont forget to upvote and resteem if it helped you in any way.....