Crypto pump and dump: what it is
Updated:
When people ask what a crypto pump and dump is, they mean two stages: first a coin's price shoots up (the pump), then it falls back just as fast (the dump). For a trader the second stage is the interesting one: you can try to short near the top and exit on the pullback. But it is a risky game, and the sections below show why.
How a pump starts
There are several causes, and not all of them are "artificial".
- Organized pumping. A group agrees to buy an illiquid coin at the same moment to push the price up, then sells to those who rush in after the rise. In many jurisdictions this is treated as market manipulation. This article does not encourage taking part in it.
- News and hype. An exchange listing, a loud announcement, a social media trend, and everyone buys at once.
- Low liquidity. When there is little trading, even a small amount of money moves the price. The sharpest jumps are usually on thin coins with a small daily volume.
- Short squeezes. As the price rises, short sellers close their positions, which means they buy, and that drives the price up even harder.
Why the price usually rolls back
After a sharp jump, some of those who bought cheap take their profit, fewer new buyers show up, and a price that rose in a few hours is no longer supported by anything except hype. So the rise is often partly or fully reversed. But "often" is not "always". If there is a real reason behind the pump (a major piece of news, for example), the price can go higher and never come back. For a short seller that is a loss with no ceiling, which is why a stop loss is a must.
How Snapback detects a pump
In the service a "pump" is not a feeling but a rule made of three numbers that you set in the Pump block of the bot wizard:
- Rise: 5%, 10%, 20% or 25%.
- Window: how fast that rise happened (1 hour, 1.5 hours or 2 hours).
- Trading volume: the coin's daily turnover on futures (several ranges, from "<1M" to ">100M" dollars). You can pick more than one range.
Every minute the scanner checks each coin. It takes the window of recent minutes, finds the highest price in it (the peak) and the lowest price before that peak, then calculates the rise from the low to the peak. If it is at least your threshold, the coin becomes a candidate. One important detail: the low is searched only before the peak, so a coin that has already spiked and fallen back does not count as a pump that can still be traded.
Filters that cut out the noise
Not every sharp rise is worth shorting, so a candidate goes through extra checks.
- Blacklist. Coins you excluded by hand.
- Volume. If the coin's daily turnover is outside your chosen ranges, it is skipped.
- Confirmation candle. The bot does not enter until the price has moved away from the peak: you set "Pullback from the peak, %". The idea is not to short while the rise is still going on.
- Not ATH. The bot does not short a coin that is breaking its 60-day high (with the buffer you set): a real breakout often keeps going.
If a coin fails a filter, it is written to the journal with the numbers ("the pullback was 0.9%, 1.5% needed"), so you can see why the bot did nothing.
What happens next
Once a coin has passed every check, the bot places a limit sell order. Depending on the entry mode you chose, it sits slightly above the signal price or at the peak level and waits for a set time. If the price does not come back to the order, it is cancelled and there is no trade. If it does, a short opens and the bot immediately places a stop loss and laddered take-profits. More in how a trading bot protects a position and stop loss and take profit on Binance futures.
Risks
- A sharp rise can be the start of a large trend, and a short against it gets stopped out.
- During general hype, pumps show up on many coins at once, and the bot can open several positions that lose together. For this there are limits on the number of positions, on total margin and on the daily loss.
- The price on such coins jumps around, so a stop can fill worse than its set price.
- Settings that looked good in the past will not necessarily keep working: see the crypto backtesting tool.
To see how a short works on the exchange itself, read how to short crypto on Binance.
Frequently asked questions
What is a crypto pump and dump in simple terms?
It is a sharp jump in a coin's price (the pump) followed by an equally sharp fall back (the dump). The jump can be engineered or just the result of hype.
Does a coin always fall after a pump?
No. Sometimes a sharp rise turns into a lasting trend, and then a short loses money. That is why strategies that fade pumps use a stop loss and filters.
How can I spot a crypto pump before it ends?
You have to watch the price of many coins at once and compare the rise against a threshold over a set time. Doing that by hand is almost impossible, so scanners and bots do it.
Is a crypto pump and dump illegal?
Organizing a pump and then selling to your own followers is market manipulation, and many countries prosecute it. Trading on a move that has already happened is a different matter.