What Is a Bear Trap?
A bear trap is where an individual or a group of traders looks to manipulate a cryptocurrency in order to create a pattern. For instance, a group of traders may simultaneously sell a large amount of a cryptocurrency, sending fake market signals because it paints a picture on the price chart that looks like a price correction is in order. Thus, individuals are inclined to believe the price will drop even further.
Individuals who believe a cryptocurrency’s price will decrease are known as bears, and when they think an asset is due for a price correction, they attempt to short it to capture profits. When this happens, the one in the group who coordinated the trap buys the cryptocurrency back, sending its price back up, and thus making a profit. This buyback also causes those who put in short orders to be liquidated.
These traps can devastate traders who don’t take the time to perform due diligence and consider multiple factors when trading. Therefore, it’s essential to gain deeper knowledge of technical analysis before trading cryptocurrency.