Dump in Crypto is a situation where the price is much higher than the real value of the market. At some point, the person who performs the Dump will sell most or all of his assets to make a profit. However, when investors discover it, it is too late. And the later buyers are the ones who suffer the most losses. Therefore, to learn about this occurrence, please refer to the article below by Crypto Trading to understand more.
Learn some information related to Dump in crypto
To better understand Dump you can refer to some information below.
What is Dump and Pump?
Dump is a term in the cryptocurrency market that describes the act of selling a large amount of cryptocurrency in a certain period of time. This action is usually done with the purpose of taking profit or cutting losses. This, in turn, leads to a significant and sudden drop in the price of the cryptocurrency.
Pump in Crypto means to pump in, this is the act of buying a large amount of a coin. To push the demand and price of the coin much higher than the real value so that the coin traders can follow. At some point, they will dump it and even go to 0. The initial price of the coins chosen to pump is often low in value and very few people know about it.
Signs of a Dump in Crypto
To determine the appearance of Dump in crypto you can rely on some of the following signs:
Sudden Price Drop: When you monitor the price chart and find an unusual drop. Or there are signs of irregularity, it may be the appearance of a Dump.
Abnormal trading liquidity: Investors need to confirm that the sudden price drop is supported by trading volume. To perform this test, you should use analytical tools to monitor trading volume. A spike in volume is often a sign of strong selling activity.
Negative news spreads in the market: If you find evidence of negative news or market analysis that is putting pressure on the coin. This is one of the signs that Dump is appearing.
See also: What is Dump? Tips to help you “avoid” the dump trap
Causes of Dump in Crypto Trading
Profit Taking: After a strong price increase, many investors may decide to sell their coins to make profits. This massive selling can put selling pressure on the market, leading to a price drop.
Negative News: When the market receives negative news related to a coin or the cryptocurrency market in general. Investors may panic and sell off coins leading to a drop in price.
Market Manipulation: Some individuals or organizations can manipulate the market by buying a large amount of coins. The purpose is to push the price up, attracting investors to buy. Then, they dump the coins, causing the price to drop sharply and profit from the price difference.
Cut loss: When the price of a coin drops sharply, some investors may cut their losses to limit their losses. This selling also contributes to pushing the price of the coin lower.
Low liquidity: Coins with low liquidity, meaning small trading volume, are more susceptible to price manipulation.
The Dump in Crypto
When a phenomenon Dump in crypto appears, it will leave some of the following consequences:
Impact on market psychology: Dumps can create panic, fear, and doubt among the investor community. This, in turn, causes them to make rash investment decisions leading to massive coin sell-offs.
Loss of confidence in the investment market: When coin prices continue to fall due to Dumps, investors may lose confidence in the cryptocurrency market. This process leads to the withdrawal of funds from the market, causing a decrease in market liquidity.
Impact on coin price: A dump can cause coin prices to drop sharply in a short period of time. This can cause great damage to investors holding coins. Especially investors who bought near the price peak.
Increased Market Volatility: Dump in crypto contributes to increased volatility in the cryptocurrency market. Therefore, it will make the market riskier for investors.
Reduce trading volume: When coin prices drop sharply due to a Dump in crypto, investors may limit trading. Therefore, there is a phenomenon of reducing trading volume on exchanges.
Cause network congestion: In some cases, a Dump can lead to blockchain network congestion. Due to the sudden increase in transaction volume, it causes transaction delays and high transaction costs.
Strategies for Dealing with Dumps in Crypto
To deal with the appearance of Dump, you can refer to the following ways:
Improve your knowledge of Crypto Trading investment
With a volatile investment market like cryptocurrency, you need to constantly update your knowledge about Crypto Trading, Crypto Uptrend, Tokenomics Arbitrum. You need to equip yourself with knowledge including price history, trading volume, and related news. Pay attention to keep up to date with market developments and be ready to change your strategy if necessary.
Use of technical analysis tools
To deal with the phenomenon of Dump in crypto, investors can combine other analytical tools. Using technical analysis tools helps you identify market trends. At the same time, it also helps investors make informed decisions. Besides, it can help you track the performance of your investment portfolio. You can combine it with indicators such as RSI, MACD, technical analysis, candlestick patterns, etc.
Risk Management to Avoid Dump
Investors should manage risk to avoid the occurrence of Dump. Risk can be managed in the following ways:
Only invest money you can afford to lose. Never invest money you cannot afford to lose. It is possible that you could lose all your capital.
Diversify your portfolio and don’t focus on one or two coins. Instead, diversify your portfolio. By investing in many different coins, such as Bitcoin, HTX, MEXC…
Set a stop loss: Determine the price at which you are willing to sell your coins to limit your losses.
A stop order is an automatic trading order that will be triggered when the coin price reaches a certain price. This helps you sell the coin and limit your losses.
See more: Instructions for opening an MEXC global account
Things to keep in mind to avoid getting caught in the Dump trap in Drypto
To avoid getting caught in a trap Dump in crypto, investors need to note the following:
Research the project thoroughly before investing in any coin. Take the time to learn about the project, the development team, the technology, the development roadmap…
Invest in potential projects for long-term development and have a reputable development team.
Avoid investing with the crowd and don’t buy coins with the Fomo mentality. Besides, you shouldn’t sell coins just because the price drops with the crowd.
The Crypto market is volatile in the short term but tends to grow in the long term. Therefore, be patient and hold coins for a long time to take advantage of potential profits.
The Crypto market is volatile in the short term. Therefore, you need to stay calm and not make hasty investment decisions. Be patient and do not be discouraged by short-term market fluctuations.
Conclude
Dump in crypto often happens to coins with low trading volume and liquidity. Therefore, encountering such cryptocurrencies can help you limit many risks. Moreover, investors should not trust too much in unconfirmed advice or news. Hopefully, this article by Crypto Trading will help you have a more detailed view of Dump. Hope you will apply it successfully in your investment process. In particular, follow us to update more information related to investment transactions.
FAQS
What psychology can Dump in crypto create for investors?
Dumps can create a FUD (fear, anxiety, doubt) mentality among investors. This can lead them to make rash investment decisions.
Can the appearance of a Dump cause market volatility?
Dump in crypto can make the market more volatile. This, in turn, can create more risks for investors.
Does the Crypto Market Dump Cause Coin Prices to Drop?
The appearance of a Dump can cause the coin price to drop sharply in a short time. In addition, it also causes great damage to investors holding that coin.
