What is a Bear Trap & How Do You Trade It?

cryptonews.com:

Trading terminology can be confusing for first-time traders and investors, especially in the crypto markets where new terms (often based on memes) pop up on a regular basis.

In this guide, you will learn what a bear trap is and what you need to look out for when you spot one.

In the crypto markets (and the traditional financial markets), a bear trap is a price pattern that falsely indicates a potential price reversal that suggests an asset may be declining in value, just to shoot up again, continuing its upward trend.

It’s called a bear trap because bearish traders and investors that see the price reversal may sell or short-sell the asset, just before it starts to rise in value again, creating trading losses for bears.

A bear trap can be a form of coordinated and controlled selling of an asset to create a temporary downtrend in its price, involving several traders who have significant holdings of a cryptoasset colluding to sell large portions of cryptocurrency at the same time.

The purpose of this action is to convince market participants that a price correction is happening, and the need to liquidate their positions ultimately drives down the price of the asset.

Once the price declines to a certain level, the bear trap is released, and the colluding traders will buy back the assets at a reduced price. The value of the cryptoasset will start to rise, and the traders can profit from the price movement.

Bear traps can happen over several days or within a few hours. Overall, a bear trap is often sudden and short-lived, persuading bullish market participants to short the underlying asset in anticipation of a price downtrend that can lead to some loss. The aftermath of the sudden price decline is sharp as the previous uptrend.

Bears