Market manipulation is a ubiquitous concept that occurs across multiple platforms worldwide. The idea of a bear trap had existed long before cryptocurrencies existed, where institutional traders fake an upward trend rather than showing the downward trend waiting for the market to occur.
What Is A Bear Trap?
Talking about the bear trap, this technical pattern shows an upward trend incorrectly in the market’s downward trend. There is a brief upward trend in a bear trap, drawing in more buyers who think the bottoms are in. However, prices stall and drop much lower than bulls’ entry levels, liquidating long positions.
Bear traps are quite common among people who do trading, who objectify the need to liquidate the traders putting up long positions in the market. A bearish trader always expects the price to fall from their desired buying position so they can put in more money for buying the digital asset. This false indication gets hold of the traders who do not suspect the market’s unnatural movement.
How Does Bear Trap Stocks Work?
While understanding the bear trap, confident investors combine their holdings to sell them simultaneously to display a price correction in the market. While the market finds it decreasing significantly, the price of the stocks drops to a lower level, which increases the selling pressure on the stock.
Although bullish traders are selling off their stocks for profit, the bearish trader is working on putting up more money when the digital asset drops to retest critical positions across the chart. This is how a bear trader can put up a bear trap which enables them to put in their bid to the point that would bring them more profits.
Market manipulation becomes successful, and the asset returns to its own position wholly accompanied by a trap from the traders.
What Is The Effect Caused By The Bear Trap?
As it is exclaimed that the bear trap brings in a manipulated downward trend in the market, there are no certain proofs of such a case. Being a trader, one should always look for a bear trap crypto when they observe such a clear distinction in the price falling of the asset. As you watch the decrease in the price, rather than putting up losses in your assets, you should always wait for the bear trap to occur. This can save your declining assets from being sold off in losses.
Bear traps, however, are a direct influence on bullish traders. Additionally, technical traders who are observant the graphical movement of the trades are affected directly by the implications put up by the bear trap. Bear traps are quite common in institutions that usually put up larger bids for stocks and assets in the market. Their objective in such a market manipulation is to put up the price so they can buy more and book some profits across their holdings.
The cryptocurrency market existing today also faces big bear traps throughout its propagation. Haven’t been many times when the market failed to assess the bear trap, as investors take much advantage of the volatility of the digital assets.
Examples Of Bear Traps In Crypto
Take a look at this screenshot of the Bitcoin 1-month candlestick chart:
- A shows a sudden drop around the USD44k area.
- B shows a gradual upward trend from 44k to 48k within a couple of days.
- Some traders may see this upward moment as an opportunity to gain profits by holding. However, the price quickly falls and crosses the support line as well.
- C shows the extreme bear trap where the price has fallen below the support line to USD39,700k.
- After the bear trap is over, D shows the price of Bitcoin continues its original upward trend.
Take a look at this screenshot of Ethereum 1-week candlestick chart:
- A shows a downtrend in the price of Ethereum around the USD1100 area.
- B shows a gradual upward support line for a couple of hours.
- Some traders may see this rise as an opportunity to hold in hope for a better price. However, the price quickly falls below 1k and crosses the support line as well.
- C shows the extreme bear trap where the price has fallen below the support line to a USD980.
- After the bear trap is over, D shows the price of Ethereum rising up from the support line.