What is Bear Trap?
Let's find out Bear Trap meaning, definition in crypto, what is Bear Trap, and all other detailed facts.
A bear trap is a coordinated activity by traders that try to manipulate the price of a particular cryptocurrency. It’s a technical model that happens when the price of a stock or an index showcases false downward and upward trends.
The term can refer to both - the method of manipulation. It can even refer to the technical indication of the market downtrend returning to its normal state. Moreover, these “traps” first appeared in the stock market.
Besides, these traps can show up in all types of asset markets such as futures, bonds, equities, and currencies.
To put things simpler, a group of traders that have a decent amount of cryptocurrency holding could sell a large number of that amount, all at the same time. That way they convince other market partakers that a price correction is happening, so that they would sell their own holdings, and lower the prices even more.
When that happens, it means that the bear trap has worked and the fraudulent traders will be able to purchase the same assets at a lower price. The price quickly goes back to the initial state, and the same traders gain a profit.
Bear traps can occur over the course of a week or in a matter of hours. It begins when the number of holders eager to sell, outnumbers the number of holders ready to buy. Buyers then raise their offers, attracting additional vendors.
To sum this up, profits can only be seen after selling the shares, therefore, higher-income rates incentivize people to sell. As a result, investors may dump shares with the anticipation that less-skilled participants would drive down the prices by selling as well. Then, of course, they buy back the big amount. The prices rise, and they profit.
Nonetheless, it doesn’t always work. The downward trend might never occur or reverse, meaning that the trader can face a loss.