Trading terminology can be confusing for all of us, especially for beginners. It is not just a combination of weird words that can be extremely “professional,” but they can also be “modern” and confusing because new terms, often based on memes, pop up regularly.
For example: HODL. If you are new to our world of crypto, then it makes no sense. But you will soon know that it just means to hold onto your crypto with your own life.
Let us begin.
In this guide, you will learn what a bear trap is. In the following articles, you will be taught how to look out for it and how to spot it.
What is a bear trap?
In the crypto markets (and traditional financial markets), a bear trap is nothing but a price pattern that suggests a potential price reversal. But it suggests it to fool you.
A bear trap suggests that an asset will fall in value, only to reverse immediately and then shoot back up and continue its uptrend.
It is called a bear trap because bearish traders and investors, thinking of the price reversal, sell or short the asset just before it begins to appreciate again, resulting in trading losses for unlucky (uneducated) bears.
How is a bear trap made?
A bear trap is a trap made by “rich” people. It is a form of coordinated and controlled selling of an asset to create a temporary downtrend in its price, where multiple traders holding significant holdings of a cryptocurrency asset collude to sell large chunks of the cryptocurrency at once.
Why would someone do this?
To make money off people who do not know it!
The purpose of this action is to convince market participants that a price correction is imminent and the need to liquidate their positions ultimately drives the price of the asset lower.
In the following article, you can read about recognizing a bear trap. (Article coming soon!)
