Text pasted from my article here: http://josephshanaha...mpanddumps.html
Two Simple Rules to Spot (and Exploit) Pump-and-Dumps!
Taking a look at the charts at mcxNOW or cryptocoincharts, you can quickly see patterns which resemble the classic pump-and-dump. Here's how to make some money during the frenzy!
The alternative cryptocurrency market (altcoins for short) is rife with what predatory traders make their living off of: pump-and-dumps. If you've ever bought an altcoin on the advice, news, or analysis of someone you don't know very well, there's a good chance that the price quickly dove below what you just paid for it. Why is that?
You likely fell victim to a pump-and-dump, which is a manipulation of the price of a coin based on shaky news, orderbook wizardry, or a big owner taking a payout. Don't worry- it has happened to all of us, even though most people won't admit it. In fact, most traders love seeing the early signs of a pump-and-dump, or even go out of their way to manufacture one themselves to make money off of you!
So, how do you make money in a market that might be rigged against you? Here's a list of tips and rules I follow when buying a coin:
Rule 1: "A coin is as strong as its development team".
This rule is so amazingly true that it defies all technical analysis ever made. This is because altcoins are a bit like stocks: you have to trust that the leadership and community supporting a coin are constantly thinking of new services and code to make a coin more useful compared to others.
Take for example Litecoin, a coin that in my opinion is not scarce, not fast, and no longer "innovative". There are hundreds of thousands of Litecoin made each day, which requires many new traders to support the current price. The blocks are slow compared to WorldCoin or MinCoin, which safely support block times of 30 seconds to 1 minute. And the only major innovation the development team offered- the scrypt algorithm- has been copied by tens of other coins. Further, the development team have publically asked for money to continue to develop the coin. This sounds incredibly weak to me.
So, if you see an upward movement on Litecoin, be wary! What is the news that spurred the buying? Is it a new service that is coming out (fiat exchange? TOR marketplace?)? Is a new big buyer (a "whale") buying coins? If you buy on the uptick, the people selling to you are likely taking a profit. If too many people decide to take a profit, you will be left "holding the bag", i.e., the overpriced coins you just bought!!!!
Rule 2: "Buy on silence, sell on rumor, buy again on delivery".
In this market, there is no news. There is only silence, speculation, and the actual delivery of a service. Those who buy on silence stand to make the most gain, because they are risking the most money without any indication anything positive is planned for the coin.
Then, when a new idea is proposed to the community as "news", people will quickly start buying. The classic example we all know is "Litecoin will be on Mt. Gox soon!". Every LiteCoin pump revolves around this, almost like a joke. And yet new buyers continue to lose money on it, because the rumors never materialize.
If Litecoin ever does end up on Mt. Gox, however, it would be wise to buy. Once a service is delivered, the person providing that services has the intention of keeping it going. This is because it makes him money- and gives him recognition.
So there you have it! Two simple rules that you should always follow when considering buying a coin during a high volume frenzy. Sometimes it is better to miss the boat than hold the bag. If you aren't confident in spotting high and low prices, it is better to get in on the bottom through the above scouting tips.