Pump and Dump in NEPSE: How to Detect and Avoid Market Manipulation
Pump and dump schemes are becoming common in Nepal's stock market. Learn how to identify red flags using technical indicators, broker data, and trading behavior before it’s too late.
Nepal’s stock market, NEPSE, has grown rapidly in the last five years. But along with rising investors and IPOs, there's also been a rise in manipulative trading behavior—especially pump and dump schemes.
A pump and dump occurs when manipulators artificially inflate a stock’s price to attract investors and then quickly sell their holdings for profit—leaving others with losses.
These schemes are subtle but dangerous, especially in volatile sectors like hydropower, microfinance, and insurance. In this guide, we’ll explain how to detect pump and dump setups before you become the next victim.
1. What Is a Pump and Dump Scheme?
A pump and dump in stock markets involves two main stages:
Pump Phase: Price and volume of a stock rise sharply due to false hype, coordinated buying, or manipulated rumors. Retail investors join in, fearing missing out.
Dump Phase: The manipulators exit after a steep rally. Prices crash suddenly. Retail investors suffer heavy losses.
Common Tactics in NEPSE:
Circulating rumors via social media (e.g., “Bonus 1:1 incoming”)
Spreading fake news about MoUs, project wins, or mergers
Coordinated buying by 1–2 brokers to push price
Triggering technical breakout patterns to lure traders
2. Why Is NEPSE Vulnerable to Pump and Dump?
Several market conditions in Nepal make pump and dump schemes easier:
Low regulatory enforcement
Lack of real-time news verification
Retail dominance: Over 80% of trading volume is from small investors
Thinly traded stocks: Many stocks have low liquidity
High reliance on rumors and Telegram groups
3. Red Flags of a Pump in NEPSE
A pump setup can be identified by combining technical indicators and broker summary data.
✅ Pump Detection Checklist:
Indicator | Criteria |
|---|---|
1. Price Spike | 3-day return > +20% |
2. Volume Surge | Today’s volume > 2.5× 20-day average |
3. Broker Concentration | Top 1–2 brokers = 60%+ of buy volume |
4. RSI Indicator | RSI > 70 = Overbought condition |
5. Suspicious News | Rumors about bonus, MoU, AGM, etc. |
If 3 or more of these flags are met, consider it high pump risk.
4. Red Flags of a Dump
After a pump, the dump typically begins within 3–10 trading days.
✅ Dump Detection Checklist:
Indicator | Criteria |
|---|---|
1. Price Crash | 3-day return < -15% |
2. Volume Collapse | Volume drops sharply post-spike |
3. Broker Exit | Brokers who were buying are now selling |
4. Reversal Pattern | Bearish candle formations (e.g., shooting star, bearish engulfing) |
5. No News Justification | No fundamentals or events backing the price drop |
5. Real-World Example: Pump and Dump Case Study in NEPSE
Let’s take a real example to understand how this works:
Stock: XYZ Hydro (Hypothetical)
Date | Close Price | Volume | RSI | Top Broker Buy % | Suspicious News |
|---|---|---|---|---|---|
Day 1 | NPR 120 | 10,000 | 55 | 25% | AGM Notice |
Day 2 | NPR 138 (+15%) | 18,000 | 65 | 40% | "Bonus 1:1" Rumor |
Day 3 | NPR 155 (+12%) | 30,000 | 75 | 62% | MoU Leak |
Day 7 | NPR 110 (-29%) | 9,000 | 42 | Selling Starts | None |
Conclusion: Retail investors who bought at 150+ are now stuck, while insiders dumped at the top.
6. Broker Summary Analysis: Your Best Tool
In NEPSE, each stock’s broker summary shows who is buying and selling. You can track:
Total buy/sell quantity
Buy/sell amount
Top brokers by volume
Key Insight:
If 1–2 brokers dominate the buying during a pump, and exit quickly, it's likely a manipulation attempt.
7. Pump Score System (Optional but Powerful)
Some traders build a Pump Score between 0–100 to categorize stocks:
Signal | Score |
|---|---|
Price spike > 15% in 3 days | +25 |
Volume > 2.5× 20-day avg | +20 |
RSI > 70 | +15 |
Broker concentration > 60% | +25 |
Suspicious news or bonus rumor | +15 |
Total Score ≥ 70 → High Pump Risk
40–69 → Watchlist
<40 → Normal
8. How to Protect Yourself from Pump and Dump Traps
✅ DOs:
Use technical analysis tools (RSI, volume, MACD)
Monitor broker summary daily
Confirm news from official sources (NEPSE, SEBON, Company websites)
Set stop-losses
Diversify; don’t go all-in on one rumor-driven stock
❌ DON’Ts:
Never chase stocks after 30–40% rise in 3–5 days
Don’t rely solely on Telegram/YouTube tips
Don’t hold “hyped” stocks too long without checking fundamentals
Avoid buying stocks with low float and high rumor volume
9. Are Regulators Doing Enough?
SEBON and NEPSE have issued warnings, but market surveillance in Nepal is still weak.
Until there are:
Real-time trade alerts
Insider trading investigations
Stricter listing rules for low-quality IPOs
pump and dump cases will continue.
10. NEPSE Sectors Most at Risk
Based on past pump cases:
Sector | Risk Level |
|---|---|
Hydropower | 🔴 High |
Microfinance | 🟠 Medium |
Development Banks | 🟠 Medium |
Life Insurance | 🟡 Low |
Commercial Banks | 🟢 Very Low |
Hydropower and small-cap companies are most frequently targeted.
11. How to Use Technology to Stay Ahead
You can use the following tools to automate pump detection:
Excel/Google Sheets: Create a daily pump score tracker
Python + Pandas: Build a scanner for 3-day return, RSI, volume spike
Nepal Stock API / NEPSE CSV Data: Automate analysis
Broker Summary Visual Tools: Detect shifts in volume patterns
Conclusion: Stay Smart, Stay Safe
Pump and dump schemes aren’t new, and they won’t go away overnight. But as a retail investor, you can defend yourself using a data-driven strategy.
“Don’t be the last buyer in a pump. Be the smart trader who exits before the dump.”
By combining technical analysis, broker summary data, and market awareness, you can avoid traps and focus on real wealth creation.