By Amie Parnaby

It is a truth universally acknowledged in the trading world that for someone to come out on top, someone else has to lose. It’s a simple fact of maths, but one that few of us wish to dwell on.

In the established markets of Stocks, Forex and Index trading there are strict and reasonably fair rules, to which everyone (should) adhere. Everyone has access to the same data and winners are determined by their best extrapolation of that data.

However, cryptocurrency is still an infant in comparison to these old and established markets, and strict discipline and standards have not yet caught up with the increasing popularity. Players and markets don’t play by the rules of the old order, and so far regulation hasn’t caught up with them, yet.

Three major players will mess with your analysis and can seriously affect your cryptocurrency investment:

Whales

Essentially, those with so much investment in the crypto-pool that any significant movement makes big waves in the markets.

Most people have never actually had an encounter with a whale, but that doesn’t stop people labelling them the cause of all severe upheaval in the markets.

Unfortunately, given the comparatively small pool that crypto trading inhabits in the financial world, large-scale transactions can cause havoc with regular trading patterns which aren’t usually noticeable until after the fact.

Some tricks that whales have been known to use to manipulate the markets are:

Stop-loss hunting

Intentionally pushing down prices to trigger stop-loss orders. Whales have enough holdings to maintain a slew of sell orders which in turn drives prices down.

Once the price has dropped to a significant point (one where most traders will have sold to mitigate their losses), the whale then makes a complete 180-degree turn and buys up all of the sold coins at the lower price.

They then wait for the market to recover before selling the coins.

Spoofing

This is a common strategy used to manipulate the market. It means creating ‘spoof’ trades with every intention of cancelling them before they are filled.

By placing a substantially large buy order under a much smaller buy, order sends a bullish signal to the market and investors.

The ‘spoofer’ then cancels their entire order, but the bullish signal has already happened. As the price starts to rise the spoofing trader begins to sell his coins.

This also works when sending bearish signals and placing sell orders too.

Insider Traders

According to the SEC  insider trading is defined as “any securities transaction made when the person behind the trade is aware of non-public, material information.” So far the SEC hasn’t made any definitive decisions on any particular cryptocurrency, so it doesn’t apply in the cryptosphere. Most traditional markets with better-defined regulations have made insider trading illegal.

One incidence occurred when Coinbase tweeted that it was going to add Bitcoin Cash to the exchange, but before that information was made public, the price and trading volumes had a very suspicious surge.

Another incidence involved the South Korea Financial Supervisory Service, who knew that new cryptocurrency trading restrictions would come in to play but still made trades before the announcement. While it has been accepted that trading violations had occurred the response was unrepentant and stated that as there is no code of ethics and no specific regulation, then it’s very hard to issue a punishment.

Pump & Dump Executives (P&D)

Pump and Dump Execs are the top echelon of the P&D groups are market manipulators. Pumping takes a cheap asset, artificially inflates the price. Then, when the price begins to inflate rapidly, everyone who is a part of the Pump & Dump Group will sell at the inflated price, consequently creating a ‘dump’ as all of the group sells out at once.

P&D Execs find a coin that has a large social community, advertising ability a small order book and low trading volumes, between them these qualities make a coin easy to manipulate

The execs will start off by surreptitiously buying the asset while it’s cheap, being very careful to avoid creating bullish signals with their purchases. Once they have bought into the coin, they will spread the buy signal to their group members who will buy in and then start ‘shilling’ the coin it’s going to the moon because… (pick a reason that might sound feasible, the rumour of a coinbase add or partnership updates)

As the price rises with all of the additional input and increased trading volumes, the execs sell-out. Once they have got out, they spread the signal to their disciples who then also get out and the coin ‘dumps’. Quite often all the way down to its pre-pump level.

The slowest off the mark loses out.

There are a lot of these P&D groups

So it’s rigged?

Yes and no, at present with every government on the planet making different decisions on how to regulate cryptocurrency the rules are not yet in play so at present it’s every man for himself. The wheels of regulation turn slowly.

Technical analysis has always been the best way to look at crypto investing, but the traditional methods don’t work almost 50% of the time. One trick to making TA work for crypto investing is to learn the patterns inherent in the pump and dump schemes, spoofing and sudden turns when whales are stop-loss hunting. It is a learning process for everyone.

Eventually, the regulatory services will get their collective acts together, and practices such as insider trading will become less prevalent than they are now. Where trading violations happen, they can be punished.

The crypto market is the wild west and we young pioneers have to accept that law and order take time to take hold and establish themselves. All we can do is learn to spot the trends that accompany the nefarious trades.

About the Author:

Amie Parnaby is a professional writer and her experience spans a broad range of industries, from I.T. to training and optics to banking. Currently, Amie is the content writer for Terrexa – your entry point for crypto.