Protect Your Profits: Avoiding Rug Pulls and Pump-and-Dump Tokens

Welcome back to our blog series about staying safe in the crypto world! If you haven’t read our first blog, we recommend starting there. It covers the basics and could help you save a lot of money.

In this blog, we’ll talk about a more sneaky type of scam: tokens that seem fine at first but are secretly designed to steal your money later. These scams often make small profits at first to attract more people, then suddenly “rug-pull” and take everything.

What Are Rug Pulls and Why Are They Dangerous?

Rug pulls and pump-and-dump schemes are scams where the creators of a token drain the liquidity pool by leaving everyone else with worthless tokens. These scams can destroy your profits from an entire day or even a week in seconds.

It’s exciting to trade new tokens for fast gains, but some of them can quickly ruin your efforts. That’s why avoiding or limiting exposure to these risky tokens is so important.

6 Simple Tips to Avoid Rug Pulls

Here are some practical steps to help protect your money:

1. Trust Risk Warnings

Platforms like Mizar and other websites flag risky or suspicious tokens for good reasons. If you see warnings about a token, don’t ignore them.

• What to do: Reduce your exposure by using smaller order sizes, fewer bots, and avoiding dollar-cost averaging (DCA). A single bad trade could undo all your profits.

2. Be Careful with New Tokens (younger than 1 day)

New tokens are risky because their prices are still being discovered, making them very volatile, and unpredictable. Big price swings can hurt you, especially if you’re using DCA strategies. Additionally, most of the rug-pulls happen during the first day of life.

• What to do: Start with small order sizes and give the token a day or two to settle before committing more money. This way, you can avoid unnecessary losses. Don't DCA on these tokens!

3. Avoid Low Liquidity and High Volume Tokens

Some tokens show huge trading volumes but have very little liquidity (eg: $5M volume in 24h, with $100k liquidity). This is often a trap, especially if you don't see such an engagement on their social networks.

• How it works: Scammers pump up the volume with multiple wallets to attract traders, sometimes letting you make small profits early on. This gets more people interested.

• The rug pull: Once enough people are involved, the scammers dump their tokens, crashing the price and leaving everyone else with nothing.

4. Check the Charts and Swaps

If you’re unsure about a token but still tempted to give it a chance, take a few minutes to analyze the chart and recent swaps. Tools like Dexscreener or Dextools can help you see all the recent trading activity.

Here’s what to look for:

• Suspicious buying patterns: If too many wallets are buying small amounts, it could be a sign of artificial activity designed to inflate interest.

• Unusual dumping behavior: Look out for wallets dumping large amounts of tokens without any prior buying history. These are often early investors or members of the project team, which could indicate insider manipulation.

By taking a closer look at the activity, you can spot red flags before committing your money. A few minutes of research can make a huge difference in avoiding scams!

5. Test, Test, Test!

Even if you’re getting recommendations from trusted alpha channels, it’s still crucial to test things yourself first. Just because others are making a lot of trades doesn’t mean it’s the right time for you to jump in.

Jumping into a token without testing can lead to false confidence—especially if the token is new. You might unknowingly join at the end of a short profit cycle, right before the momentum fades or the risks rise.

What to do:

• Let the token run for a few take profits into a test bot to observe its behavior.

• Pay attention to price movements, trading volume, and volatility to ensure everything looks clean and stable.

• Use this time to figure out the best bot settings for that token, so you can optimize performance while minimizing risks.

Taking the time to test can save you from costly mistakes and help you make more informed trading decisions. Patience pays off!

6. Use Capital Management Techniques Effectively

Risk management is the cornerstone of successful trading. Savvy investors know that dividing their capital into separate portions, each with a specific purpose and risk level, is the key to long-term success. A straightforward and effective method to achieve this is by splitting your funds across multiple wallets and assigning each wallet to different strategies based on risk.

A Simple Wallet Strategy:

• 15% for risky and new tokens: This wallet is for high-risk opportunities like newly launched or highly volatile tokens.

• 35% for early-stage tokens: Use this portion for tokens that are gaining traction but still come with moderate risk.

• 50% for established tokens: Keep the majority of your capital in well-known, stable tokens with lower risk profiles.

Optimizing Bots for Each Wallet:

Each wallet can be assigned one or more bots with tailored settings to align with the type of tokens they trade. Here’s how you can set up your bots:

• Bots for Risky Tokens (Younger Than 2 Days): Use lower order sizes to limit your exposure, avoid or minimize DCA, set higher price drops and take profit levels to handle extreme volatility. Also, you could consider using a stop-loss to protect against sudden price crashes to zero.

• Bots for Early-Stage Tokens (Older Than 2 Days): Increase order sizes slightly compared to risky tokens, enable 1-2 DCA levels for better cost averaging, and reduce price drops and take profit levels to balance risk and reward.

• Bots for Established Tokens: Allocate higher order sizes for increased investment, allow for more DCA levels to improve trade entry price, and use tighter price drop and take profit settings to lock in steady gains.

The Benefits of This Approach

This structured method ensures your capital is diversified and risk is managed effectively. By assigning different strategies to each wallet and bot, you can:

• Limit your exposure to high-risk tokens.

• Preserve your gains from established tokens.

• Gain a clearer understanding of performance across different token types.

• Minimize the impact of a single bad trade on your overall portfolio.

With a strong focus on capital management and tailored bot settings, your trading strategy becomes more balanced, sustainable, and prepared for the challenges of the crypto market.

Be a Smart DeGen

Crypto trading can be exciting, and FOMO is always having more impact than what we think, even when using automated bots. However, protecting your money is more important than chasing risky profits. By trusting risk warnings, starting small with new tokens, and avoiding red flags, you can trade safely and avoid scams.