In this post, you will learn about the inner workings of a crypto pump and dump scheme and how to avoid being scammed.

Cryptocurrency has been one of the most talked-about and lucrative trading markets in recent years. But, in the earliest days of crypto, a number of scams and fraudulent trading practices were almost commonplace.

One such practice is the Pump and Dump Groups who engineer Price Manipulation Schemes – many may be social media influencers who may cause short term price moves under the guise of a social media commentary.

Let’s take a closer look at the Phases of a Pump and Dump Price Manipulation Scheme in cryptocurrency trading and how you can spot it and protect your investment, including FAQ on how authorities are dealing with these groups.

Crypto Popcorn Markets

Below, we’ll explain how to safely capitalize on crypto pump and dump moves across a diversified group of high probability markets using our proven Crypto Popcorn Trading Strategy.

The Phases of a Pump and Dump
Price Manipulation Scheme in Cryptocurrency Trading:

Phase 1: Building Social Proof

The first phase of the pump and dump price manipulation scheme involves creating a false sense of exclusivity and prestige or recognition within a group.

This phase begins with the formation of a closed community, such as a private Discord channel or Telegram group, where only the leader or a select few can communicate.

During this phase, the leaders of the group offer special rank and recognition for those who invite in the most new members. They may offer to give special privilege and status to top promoters.

These ranked members believe they will gain early access to insider information about upcoming pumps, promising huge returns for the ranked members who get to buy in before the public. However, as with most too-good-to-be-true schemes, working with a scammer is always chasing an empty promise.

The leaders will use this phase to have their ranked members create a sense of exclusivity and excitement among the members, making the ranked members feel like they are part of an elite group that has access to secret knowledge.

Phase 2: Accumulation

The next phase of a pump and dump scheme is the accumulation phase. In phase two, the leaders engage in a very different activity, which is done very quietly.

In this phase, the perpetrators buy a large number of coins or tokens at a low price, keeping their activity under the radar to avoid moving prices.

This is when they begin pre-buying the target cryptocurrency before the promotion is released to the public, and even before it’s identity is released to their insider members.

Planning The Next Pump

A lot of planning often goes into this phase, and the leaders may engage in backroom deals to determine which cryptocurrency will be ‘promoted’ next. They may even do a double-switch on their own insiders at the last minute, keeping all the profits for themselves!

During this phase, the pump and dump leaders will typically select a cryptocurrency that is not mainstream in the public eye. They tend to target projects that have a limited trading volume and low market cap, and especially those items that have a limited supply available on the exchanges.

This limited supply is a key element of the scheme, as the leaders and insiders have already purchased most of the supply of the target cryptocurrency and are holding it. This reduces the liquidity of the market and makes it more vulnerable to price spikes.

They purchase as much of the targeted cryptocurrency as possible at the minimum price possible, without pushing the price up.

Phase Two is almost complete when the group leaders have accumulated almost all of the available inventory for the targeted cryptocurrency. This phase can take up to two or three weeks as the group leaders slowly buy everything at the minimum price possible.

Final Phase of Accumulation

During the last few days of Phase Two, the group leaders inform the insider ranked members about the targeted cryptocurrency. The insiders then have a day or two to accumulate the cryptocurrency before Phase Three starts.

The insiders purchase as much of the targeted cryptocurrency as possible at the going market price, and because supply has already been carefully collected, the insider buying causes the cryptocurrency to start going up just before it is announced to the public.

Creating The False Flag

The preparation phase of the pump and dump groups can create a small technical analysis pattern in the chart – which is mistaken as the perfect flag by unsuspecting investors.

It is important to note that the leaders of pump and dump groups are always gathering new followers and promoting the excitement of next investment opportunity, while quietly buying up the target cryptocurrency behind the scenes.

This creates an environment where the followers are already primed to invest in the target cryptocurrency, which can immediately drive up the price and make it easier for the leaders to routinely cash out with their profits.

Phase 3: Pump

Once the perpetrators have accumulated a significant amount of cryptocurrency, they start the pump phase.

In this phase, they spread ‘new information’ to create excitement about the ‘potential’ of a cryptocurrency through social media, blog posts, forums, videos and other channels.

They create hype and buzz around the cryptocurrency, making it seem like it’s going to be the next big thing. This attracts investors who want to get in on ‘the action’ and make a quick profit.

During pump, the actual volume of trade – the number of coins bought and sold – is actually small fraction of what you might expect. This is a crucial aspect of understanding the power of this scheme, as it’s not something that can be easily seen on the charts.

Never Chase A Pump

The limited supply market condition causes buyers to quickly bid prices to their maximum extremes: there is almost no volume of trade because there is no liquidity in the market (recall that the pump and dump group leaders are holding a great deal of the limited inventory). At the same time, there is enormous demand with hundreds of eager traders chasing the pump trying to buy at market prices – quickly drives the prices to extreme levels.

It’s essential to understand that during the Pump Phase, as prices are increasing at the fastest rate, very few coins are being traded, and this tilts the profits even more in favor of the pump and dump group leaders – much more than you might realize.

Phase 4: Before The Peak

The peak phase is when the cryptocurrency’s price reaches its maximum point, but the perpetrators have already sold all their coins or tokens before this.

They make a massive profit by selling their cryptocurrency to unsuspecting investors who buy into the cryptocurrency when the price is on the rise. The perpetrators know that the cryptocurrency is overvalued, but they keep the hype going to attract more buyers.

Watch For This Denial

Phase Three of the pump smoothly transitions into Phase Four. It can be difficult to discern when this shift happens as it occurs quietly, and the group leaders will vehemently deny that such a phase exists.

During Phase Four, the group leaders engage in a sophisticated sleight of hand tactic, similar to that of a master politician.

They maintain the public facing statement that price is still going to be increasing, however, they are already offloading their cryptocurrency holdings throughout the pump to reap handsome profits.

The demand for the targeted cryptocurrency remains high, and many investors continue to purchase at market price, unaware that the group leaders are liquidating their holdings while recommending the buy.

As the pump continues the group leaders holdings are significantly depleted long before the peak price is hit and prices start to dump.

Phase 5: Dump

Long after the perpetrators have made a substantial profit, they stop promoting the project and the dump phase begins. In this phase, fast buyers begin to sell their cryptocurrency, causing the price to drop rapidly. This creates a panic selling among late investors who often take serious and demoralizing financial losses. Just as sad, many of those who bought the cryptocurrency at its peak are left holding their coins or tokens rationalizing this is just a pull back and – hoping it will one day pump again.

How to Spot a Pump and Dump Price Manipulation Scheme in Crypto

It can be challenging to distinguish between legitimate market movements and a coordinated pump and dump scheme orchestrated by influencers.

Influencers may make seemingly genuine recommendations to their followers about certain coins, and the sudden surge in price may seem like a sign of a healthy market.

However, some may actually be secretly coordinating with other influencers or their small trusted insiders group to artificially inflate prices and then cash out, leaving their followers with significant losses.

One of the best practices to protect yourself is to follow the ultimate risk management rule when investing in cryptocurrency and to do your research rather than blindly follow influencers’ recommendations.

Protect yourself from scammy promotions. Have a written trading plan you understand and then look at the fundamentals of a diversified set of coins, such as the technology behind them, the use cases, the team behind the projects, and the coin’s market cap, before you choose to invest.

Another way to protect yourself is to pay close attention to market sentiment and price movements. If you notice sudden price spikes and social media hype around a coin, it’s crucial to be cautious and not get caught up in the hype. Instead, it’s better to wait for a more stable trading signal with a better risk to reward ratio before investing.

Crypto Pump and Dump Group FAQs:

Pump and dump schemes in cryptocurrency trading are a fraudulent trading practice that can leave investors with significant losses. By understanding the Five Phases of a Pump and Dump Price Manipulation Scheme

Outsmart the Pump and Dump Groups

However – with correct planning, there is a way to safely capitalize on crypto pump and dump moves across a diversified group of high probability markets using our proven ‘Crypto Popcorn Trading Strategy‘.

There’s no need to monitor, participate or even know about these groups to benefit from the price moves.

We’ve done the research and testing to uncover the only signals we need to recognize and profit from Pump Dump Groups without falling victim to this fraudulent trading practice – outsmart the scammers, manage risk and remain open to a few huge gains that make the system very profitable.

Each day for the past several years, our team has been cataloging every pump and dump price movement in the 300+ Binance Listed coin set.

Pinpoint THE Pattern And PROFIT

We can now identify common patterns in crypto markets, price chart and volume patterns that have preceded explosive, ‘unexpected’ price movements – and we can narrow down to the highest probability markets for these kind of moves.

Our research gives us the insight to select a diversified portfolio of small positions in advance, and like an insurance policy, we are positioned to capture any of those insane movements.

We call it The Crypto Popcorn Trading Strategy because the price movement mimics the explosive pop of popcorn and the immediate return back to the base. 

The Popcorn Trading Strategy is a ‘set and forget strategy’ that can be played alone with minimal time commitment and limited risk exposure. 

But it is also a vital layer of the position sizing and profit strategies that help our trading team to limit risk in the early phases of the PRO ALERTS trend following AltSeason signals from our Crypto Signal Provider!

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