Retail investors in the cryptocurrency market often confuse 'wash trading' and 'actual selling', leading to pitfalls.
Either they mistake the market maker's selling off as wash trading and keep averaging down as prices drop;
or they mistake wash trading fluctuations for selling off, cutting losses at low positions.
In fact, grasping the two core signals can greatly help distinguish between them:
1. The 'continuity' of trading volume and turnover rate.
The core of market maker's selling is 'one-sided dumping'—
once selling is initiated, it will continue to drive prices down without buying back.
Therefore, when cryptocurrency prices drop, trading volume will gradually shrink (when no one is buying after a drop, it can only decline with reduced volume), and the turnover rate will also significantly decline;
whereas wash trading involves 'dumping first and buying later', even if prices drop, the turnover rate will still remain high (for example, consistently above 15%-20% in a single day), because market makers quietly absorb retail investors' loss-cutting orders at low prices.
For example: if the price drops from $1.2 to $0.8, and the turnover rate drops from 18% to 6%, with a continuous decrease in volume for 3 days, it is likely actual selling;
if at $0.8 the turnover rate remains stable around 17%, and volume increases during the drop and decreases during the rebound, it is basically wash trading.
2. The 'trend direction' of the price moving averages.
The market maker's operating cost is usually anchored at the '20-day moving average' (a commonly used 'monthly cost line' in the cryptocurrency market).
During wash trading, even if the price temporarily breaks below the 20-day moving average, it will quickly bounce back within 3-5 days, and the 20-day moving average will always maintain an upward trend (market makers will not let their cost line deteriorate);
whereas during selling, the price will continuously break below the 20-day moving average, and the moving average will begin to turn downward.
Follow For More!
