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Bear Trap

A Bear Trap is a market phenomenon typically orchestrated by traders with substantial holdings, aiming to manipulate the price of a cryptocurrency. The process involves these traders collectively selling a large quantity of the cryptocurrency, creating the illusion of a price correction. This action induces other market participants to sell their holdings, further driving down prices. Once the price reaches a desired lower level, the orchestrators of the bear trap then repurchase the assets at the reduced price.

This strategy results in a quick rebound of the asset’s value, allowing the initiators of the trap to make a profit. Originally a concept from the stock market, a bear trap can occur over various timeframes, from hours to days. It begins when selling pressure exceeds buying interest, leading buyers to raise their bids and attract more sellers, thus temporarily pushing the market upward.

Institutional traders often initiate this by selling off stocks to prompt less experienced market participants to follow suit. When the prices drop to a predetermined level, these traders then buy back the stocks, causing the prices to rise again. While effective, bear traps carry the risk of misjudgment, where the expected downtrend may not occur or reverse as anticipated, potentially leading to losses for the traders involved.

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