Pump and Dumps: Spotting It At Its Early Stages
Remember what I said that pump and dumps happen on all markets and timeframes?
Because before you start asking me:
“What is the best timeframe?”
“What is the best market?”
My answer right now would be to find a timeframe that wouldn’t affect your daily responsibilities and choose a market you have more screen time on.
So pick a timeframe and market you think you can be consistent in the long run.
With that out of the way…
Here are two objective methods on how to spot potential pump and dumps.
Method #1: Third slope
With charting tools such as the trend line, it will be easier to spot potential pump and dumps.
That’s why to confirm a potential pump and dump…
Connect the lows using a trend line tool and wait for a third “slope” from its lows.
Here’s what I mean…
Bitcoin Daily Timeframe:
Once the market shows you a sloping behavior, then there’s a good chance that the “pump” has already started.
The only downside to using this method is that as the price develops, you may have to constantly re-plot your trend lines again…
Palladium Daily Timeframe:
Method #2: Moving Average
If you’re the type of trader that wants to keep things objective as much as possible, then this method could be for you.
For this, we would be using the 8-period and the 20-period moving average, and we’d want the price to be above both the 8 and 20-period moving average to spot a potential pump and dump.
Here’s an example…
GME 4-Hour Timeframe:
You might ask:
“Why not the 50-period moving average?”
“Should I use the 7-period moving average instead?”
“How about the 22-period moving average?”
I’m sorry to say this…
The answer is that it doesn’t matter.
Adding or subtracting 2-5 values from the period wouldn’t make much of a difference, so feel free to do so!
The concept here is to use a “tight” moving average period to spot potential fast moving prices.
Though as you know, the moving average is an indicator good for trending markets.
However, the downside to using this method is that there could be a lot of false signals from “choppy” markets…
USDCHF Daily Timeframe:
Now here’s the thing:
All methods and concepts have their pros and cons, strengths and weaknesses.
So whether you choose method #1 or #2 is up to you.
Because it’s all about “why” you use the tools and not “what” tools you use.
In the end, it’s all about being objective as much as possible, no matter how much hype there is.
Now comes the best part…