When you study traditional finance markets you will see there is some regulation. But, in crypto markets, there are no regulations and almost every Bitcoin trader will know of stories about how the market can be manipulated. In spite of all these stories, traders feel that there may not be much they can do to avoid such whims of the whales. They are prepared to deal with these manipulations that are brought on by unethical market makers. Some of the strategies that experienced traders use for obfuscation are spoofing or hidden orders. How can you protect yourself from these?
Ways to avoid strategies of manipulation used by savvy traders:
- Hidden orders are commonly used for placing large undetected bids on an exchange order book. These allow for automatic replenishment post every fill so that they cannot detected on order books. This is exactly opposite of the buy/sell wall where traders con the market through placing big orders and have no intent to execute these. The hidden orders are usually of very large amounts and these are available for any trader to use. In contrast the buy/sell walls are not supposed to be actually executed; they are only meant to show large flow and these will always get cancelled right at the time when the market achieves a certain level. The best way a Bitcoin trader can avoid these hidden orders is by not monitoring the order books like hawks.
- The big traders often try to cheat the public by posting very big trades on the most-monitored exchanges. At the same time, they conduct small trades on other exchanges. The professionals do this to benefit from wash trading, arbitrage, etc and sometimes to conceal their real flow. If you wish to avoid this tactic, you can ignore the large trades and instead focus on the long-term price trends to avoid getting cheated.
- Forced liquidation happens when the whales prop up prices in order to liquidate their exposures. When liquidation is forced there may be a an outpouring of similar order flows whereby the smaller traders tend to suffer and the big ones have their short positions liquidated. While there is no means to predict if an entity is trying to use this tactic, there is an indicator that you can monitor to ensure you do not get affected. If you compare premiums on long-term contracts to the perpetual futures you can get an unbiased tool for gauging professional traders’ positions.
The truth is professional crypto traders will do anything to avoid detection. So, they end up doing just the opposite if they have to exploit the buy/sell walls in order to get benefits from the FOMO and FUD. There is no one transparent indicator that will help you detect manipulative strategies. While markets keep growing and staying out of control of financial regulators, spoofing and obfuscation will continue unabated. So, retail traders must start taking a long-term view of the price movements rather than simply watching trade charts. A bird’s eye-view will allow them to get the right idea about a trend and what exactly is happening in the market.