4 techniques a Whale uses to manipulate prices
A Whale is simply a word used to best describe an investor who is able to manipulate market by mobilising large amount of capital. For example in 2013, a single entity was largely responsible for pushing the price of Bitcoin from $150 to $1000 in just two months.
These are some techniques, they use to manipulate market:
1) STOP LOSS HUNTING — Whale intentionally pushes the price down in order to trigger stop-loss orders. Then they buy coins from these stop-loss orders for cheap and wait for the market to recover.
To understand this more clearly let’s take an example for coin xyz where you put market sell for 1000 xyz coins which drops its price from $150 to $110 . Now this may be a psychological breakdown for most of the people as it is a pretty big drop. Investors now watch stop-losses go off around $100 which makes more of the price drop. Now buy all the stop-loss orders at $90 and below. Now simply wait for the market to recover before repeating process.
This technique best works on coins with less liquidity and smaller order books.
2) SHORT OR LONG HUNTING- Another form of market manipulation, which can do this to wreck margin traders. They have the capability and the incentive to do so because the trader gets liquidated if the price moves in wrong direction just a tiny bit. The exchanges can particularly use bots to trigger these price movements as they know what prices will cause massive liquidation. When liquidations happen, the investor loses their entire margin and pays a big fat fee.
3) SPOOFING — Another common strategy Whales use to manipulate the market is called spoofing. It means to submit orders into order book with an intent to cancel before orders are filled. Goal here is to send false signals to investors. For example Spoofer places a large buy order below a smaller buy order with an intention of sending a bullish signal to the market. After a few trades are filled the spoofer cancels the rest of the large buy orders. And then when the price starts to rise the spoofer starts to sell his coins.
This also works in the opposite direction. By placing large sell orders, spoofers can send bearish signals and lure investors into selling their cryptocurrencies at a discount.
4) WASH TRADING- Last but not the least in wash trading an investor takes both buy and sell positions of own orders to create false signals. The bullish signal here is that it makes it look like there is more volume.
Also it is used to manipulate prices on coins with smaller order books. It is really hard to prove a wash trade as it looks very similar to real trades. For example Bitfinex was hit with wash trading during Bitcoin cash fork.
On July 27 Bitfinex unknowingly baited wash traders during the Bitcoin (BTC) fork to Bitcoin Cash (BCH). At the time of the fork, all BTC holders were to receive BCH commensurate with the amount of BTC they held.
So keep a watch out for such techniques being used and make your trades safe and profitable. Be intelligent and smart.