Most crypto traders probably are aware of yesterday's Ethereum flash crash. When you read online you will get the feeling that this crash was caused by problems caused by the Status ICO on the ethereum network. However, that's not the cause of the flash crash. I am closely monitoring the buy and sell orders on Ethereum and I noticed that in the past 2 weeks some whale, probably a hedgefund, came into Ethereum and did everything he could to cause this crash. Everytime ethereum was about to breakout according to technical analysis principle this whale put a very high sell wall.
Sell Wall
Most beginning traders don't know what is a sell wall. In the figure underneath a sell wall is depicted. The figure shows the buy and sell orders on poloniex. The green graph corresponds to the buy orders, the red graph to the sell orders. You can see that there is a huge amount of sell orders because someone decided to sell a lot of the coins at once. In order for the price to increase the market needs to be able to buy up all these sell orders at the sell wall. But because the wall is so big, this is almost impossible to achieve. This makes the price stall.
Orchestrated Crash
Last week Ethereum was about to break out of 420 $ until suddenly a big sell wall entered the scene that made it impossible for Ethereum to break out. Price stalled for a very long time. When price stalls for a very long time, some investors will sell off because they can't make any more gains. Price slowly goes down. Then at some moment the sell wall was lowered. More investors started to sell because price stalled and price started to go down again. By doing this enough time at some moment (yesterday) price suddenly started to go down so fast that people started panicking and a panick sell was initiated. The panick selling combined with shorting caused the price to go down a lot. This caused all margin orders and stop loss orders to be triggered. People on margin calls lost all their money. People with stop loss orders saw their sell orders getting triggered automatically and lost their coins.
People that are longer in crypto know these manipulators do these kind of actions. Not so long ago we had these kind of manipulations combined with DDOS attacks almost every week. So if you are new, don't be greedy by playing on margin and don't think you are smart by putting stop loss order in order to protect yourself against price crashes. In crypto there is one rule you better stick to: HODL. This means, just hold your coin no matter what. In the long run price will come back. You are still part of the 1 % of people investing in crypto. So there is no need to have fear if you invest in good coins. In the long run you will thrive because 99 % of people still need to get in.
For those not knowing what are margin calls and stop loss orders:
margin call: http://www.investopedia.com/terms/m/margincall.asp
stop loss: http://www.investopedia.com/terms/s/stop-lossorder.asp
Thanks for this post. I knew there was a big sell order but still thought that the crash was dramatic. Now I get a better picture - literally. Thanks again.
Thanks man. I hope you learned something from it that will help you financially. ;-)