How Whales Manipulate the Crypto Market
There’s something I would like to point out to people, especially traders that are new to the cryptocurrency space.
Crypto is the wild west of trading. We don’t yet have the regulations that protect traders from predatory trading practices such as artificial pump and dumps. Whales LOVE this about crypto and regularly employ tactics to stomp people out of their long and short positions. This means that they can basically use the stop loss you created to keep your money safe against you.
First let’s look at why they do this.
Whales are, well… whales. They’re a monstrous fish in a very small (but growing) pond. They have endless amounts of funds both in USDT and BTC that they need to move around in order to secure profits. Think thousands of btc. That’s a whale. In times of the market when retail traders are stressed out, skittish, and quick to FOMO into a short or long position, whales have a huge opportunity to make a lot of money quickly, but they need to get enough liquidity into the market so they can enter and exit quick positions. Let’s look at a whale shorting a position. They simply can’t sell their entire asset at once. With the amount of btc they own, they would tank the order book and screw themselves out of their profits by selling to lower prices. Like a bull in a china shop they would annihilate everything around them. So they need to short little bits of coin at a time, wait for the price to recover, then short more, and then recover, short more, recover… you get the idea. Rinse and repeat however many times they need until they are fully in position at the price they wanted. This doesn’t explain the pumps and dumps though… well actually it does.
Here’s how.
To get into position, whales first pump the price. They sacrifice some of their USDT to do this. You’ll see a big spike in volume out of nowhere, and it doesn’t correspond to any TA indicators. They then start entering their short positions in the method I explained previously. A drawn out process – short a little bit of btc, recover, short more, recover, repeat. Once in their desired short position, whales will sacrifice some of their own btc to cause a dump. That’s right, you heard me. They sacrifice part of their holdings. They sell a large amount of btc and trigger a panic price dump. People (or bots) either panic sell out of positions in fear of a crash, or their stop losses get stomped, or their longs get liquidated. Or all three, it’s a mixed bag, but you get the idea. This adds liquidity into the market which facilitates the whale’s devious maneuver. The orders go on the order book, enough orders so that the whale can buy back into position without increasing the price which would cancel out their profits made by a short. So while it costs them btc to create the dump, they make tenfold back in return via leverage. Its ingenious.
What does this look like on the charts? Have you ever heard of a Bart Simpson pattern? We had two of them today and yesterday. Here they are. There’s the initial green candle(s), the flat top where they are beginning to short small amounts careful not to disturb current price, and then the big red candle down seemingly right back to where the price was previously. They also happen in the reverse order when a whale wants to profit from a long position. Literally everything I said, but the EXACT opposite.
End result is an upside-down Bart Simpson pattern, or BS for short, because that’s exactly what they are – BULL FECES.
Which brings us to the valuable lesson: first and foremost, learn to spot these patterns. Knowing when one is occurring will prevent you from becoming the victim. Once you get really good at spotting them, you can actually ride the wave of the whale by shorting at the flat top of the Bart Simpson pattern just like the whale does during the accumulation and profit from this madness. I did twice this week. But if you were to ask me my actual advice, I would say you’re best to just sit it out. It’s artificial and it’s violent. The next, even bigger takeaway, is that these patterns aren’t valid in TA. Don’t use them for trend analysis, for indications of trend reversals, for anything TA related. They don’t indicate market direction whatsoever. They literally start and end at the same price region. It’s just a tactic whales use to make quick money.
Here’s an extra fascinating little tidbit I just thought about. You can get an idea as to how much money the whale is longing/shorting based on the length of the flat top of the pattern. The more btc, the longer it takes to accumulate under the radar, the longer the flat top of the Bart Simpson pattern is. Maybe not useful, but interesting.
Below is a chart showing the bart simpson pattern from earlier today:
Here's another with the shorts and longs overlaid with explanation:
This isn’t trading advice. This article is for EDUCATIONAL PURPOSES ONLY. The crypto market in general is highly volatile. As such, take great care when trading any crypto. Know when to sit it out. There will always be more trades.
I may contribute more to this segment as time goes on.
Crypto is the wild west of trading. We don’t yet have the regulations that protect traders from predatory trading practices such as artificial pump and dumps. Whales LOVE this about crypto and regularly employ tactics to stomp people out of their long and short positions. This means that they can basically use the stop loss you created to keep your money safe against you.
First let’s look at why they do this.
Whales are, well… whales. They’re a monstrous fish in a very small (but growing) pond. They have endless amounts of funds both in USDT and BTC that they need to move around in order to secure profits. Think thousands of btc. That’s a whale. In times of the market when retail traders are stressed out, skittish, and quick to FOMO into a short or long position, whales have a huge opportunity to make a lot of money quickly, but they need to get enough liquidity into the market so they can enter and exit quick positions. Let’s look at a whale shorting a position. They simply can’t sell their entire asset at once. With the amount of btc they own, they would tank the order book and screw themselves out of their profits by selling to lower prices. Like a bull in a china shop they would annihilate everything around them. So they need to short little bits of coin at a time, wait for the price to recover, then short more, and then recover, short more, recover… you get the idea. Rinse and repeat however many times they need until they are fully in position at the price they wanted. This doesn’t explain the pumps and dumps though… well actually it does.
Here’s how.
To get into position, whales first pump the price. They sacrifice some of their USDT to do this. You’ll see a big spike in volume out of nowhere, and it doesn’t correspond to any TA indicators. They then start entering their short positions in the method I explained previously. A drawn out process – short a little bit of btc, recover, short more, recover, repeat. Once in their desired short position, whales will sacrifice some of their own btc to cause a dump. That’s right, you heard me. They sacrifice part of their holdings. They sell a large amount of btc and trigger a panic price dump. People (or bots) either panic sell out of positions in fear of a crash, or their stop losses get stomped, or their longs get liquidated. Or all three, it’s a mixed bag, but you get the idea. This adds liquidity into the market which facilitates the whale’s devious maneuver. The orders go on the order book, enough orders so that the whale can buy back into position without increasing the price which would cancel out their profits made by a short. So while it costs them btc to create the dump, they make tenfold back in return via leverage. Its ingenious.
What does this look like on the charts? Have you ever heard of a Bart Simpson pattern? We had two of them today and yesterday. Here they are. There’s the initial green candle(s), the flat top where they are beginning to short small amounts careful not to disturb current price, and then the big red candle down seemingly right back to where the price was previously. They also happen in the reverse order when a whale wants to profit from a long position. Literally everything I said, but the EXACT opposite.
End result is an upside-down Bart Simpson pattern, or BS for short, because that’s exactly what they are – BULL FECES.
Which brings us to the valuable lesson: first and foremost, learn to spot these patterns. Knowing when one is occurring will prevent you from becoming the victim. Once you get really good at spotting them, you can actually ride the wave of the whale by shorting at the flat top of the Bart Simpson pattern just like the whale does during the accumulation and profit from this madness. I did twice this week. But if you were to ask me my actual advice, I would say you’re best to just sit it out. It’s artificial and it’s violent. The next, even bigger takeaway, is that these patterns aren’t valid in TA. Don’t use them for trend analysis, for indications of trend reversals, for anything TA related. They don’t indicate market direction whatsoever. They literally start and end at the same price region. It’s just a tactic whales use to make quick money.
Here’s an extra fascinating little tidbit I just thought about. You can get an idea as to how much money the whale is longing/shorting based on the length of the flat top of the pattern. The more btc, the longer it takes to accumulate under the radar, the longer the flat top of the Bart Simpson pattern is. Maybe not useful, but interesting.
Below is a chart showing the bart simpson pattern from earlier today:
Here's another with the shorts and longs overlaid with explanation:
This isn’t trading advice. This article is for EDUCATIONAL PURPOSES ONLY. The crypto market in general is highly volatile. As such, take great care when trading any crypto. Know when to sit it out. There will always be more trades.
I may contribute more to this segment as time goes on.
Penafian
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