A “Pump & Dump” is an organized market scheme used to trick inexperienced investors/traders into unfavorable positions.
Pump and Dumps can be identifiable chart patterns the spontaneously explode in value and almost immediately after collapse in value, dipping lower than where the explosive growth started.
Pump and Dumps work as such:
A “trusted” organizer or other entity hypes up a group of market participants about some incredible opportunity. He/She then says that the price will rally on X day at X time. The organizer then accumulates a portion of the opportunity asset and waits. All the believers prepare themselves for the XX opportunity. Shortly before the promised time, the malicious organizer will begin to manipulate the price of the asset and the expecting investors will begin to pile in. As the price goes up, the malicious entity sells their position off to the unsuspecting market participants. Shortly after, the real market climate will prevail and the demand for the asset will be exhausted. Then the price plummets. The organizer makes some percentage on the trade and all participants (most of them) are then stuck with positions in trades that they normally wouldn’t be involved with.