Everyone who invests in any cryptocurrency can see that the prices of coins are being manipulated. Unlike the traditional stock market, there are not many regulations in place to prevent price manipulation.
If you are currently trading cryptocurrencies it is essential that you understand the most common tactics of the price manipulation. It’s important to understand so you don’t fall prey to this tactic, make emotional decisions when you’re trading and then end up holding the bag in the end.
Spoofing is one of the most common but effective tactics of price manipulation. It is not legal in the traditional stock market, but it is not illegal in the cryptocurrency market.
If you’ve ever looked at an order book on an exchange while trading in the cryptocurrency market you’ve most likely seen spoofing in action.
1.) What is spoofing?
Spoofing is when a group of people manipulates the price of a coin in a certain direction. They place substantially larger buy and sell orders than the market average so real buyers and sellers can fill the orders.
They have an order above market price and below market price to keep the price in a certain range. These huge orders are typically never filled and they quickly are removed from the order book.
These huge orders are meant to emotionally manipulate other traders into thinking the price is trending in a certain direction so they change their orders accordingly.
2.) What do spoofing patterns look like?
Spoofing patterns typically work like this:
- Move price down–buy coins
- Move price up quickly-sell coins
- Move price down–buy coins
- Move price up quickly-unload your coins
- On the way down–avoid reaching the last high– (make people hold the bag and sell lower.)
- On the way up– aim for the opposite
3.) Can anyone spoof?
The only way to successfully spoof the market is to have millions of dollars to leverage. It’s technically possible that a crypto whale could successfully spoof the market on their own, but it’s not a very likely occurrence.
4.) What are some common reasons why people spoof?
- To secure margin positions and futures positions. If you can control the direction of the market, you can basically print money.
- To accumulate coins in a certain price range.
- To ensure the direction of a market (if you keep it in a price zone long enough, technical indicators will respond to this trend. Spoofing with start messing with popular indicators like moving averages and RSI. When the technical indicators are affected this will cause a major market movement getting people and trading bots to react).
- To get people to buy or sell in a price range momentarily for instantaneous profits (keeping a price high long enough to sell off a majority of your coins after a pump).
5.) How can I avoid losing money to spoofing?
The best way to avoid losing your money to spoofing is to have an awareness of their tactics. If you do not enter emotionally driven buy and sell orders during a spoofing incident, you will be in a better position long term.
Always remember that there are paper losses and actual losses, actual losses only occur when you execute a sale of your investment. Have a solid strategy of when you will enter the market and when you will exit before you put your money in a coin.
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