Crypto Mufasa
Advertise
  • Crypto News
    • General News
    • Bitcoin News
    • Altcoin News
    • Ethereum News
  • NFT NEWS
  • Beginner Guides
  • Price Predictions
  • Crypto Prices
No Result
View All Result
  • Login
  • Register
  • Crypto News
    • General News
    • Bitcoin News
    • Altcoin News
    • Ethereum News
  • NFT NEWS
  • Beginner Guides
  • Price Predictions
  • Crypto Prices
No Result
View All Result
Crypto Mufasa
No Result
View All Result

Home » Bear Trap: What Is It And How To Avoid It?

Bear Trap: What Is It And How To Avoid It?

Hania by Hania
August 5, 2022
in Beginner Guides
Reading Time: 5 mins read
A A
0
Bear Trap: What Is It And How To Avoid It
Share on FacebookShare on Twitter
ADVERTISEMENT

Table Of Content:

Toggle
    • How does a bear trap work in crypto markets?
    • Difference between bear trap and short-selling
    • Is a bear trap bullish or bearish?
    • Identifying bear trading
    • Avoiding a bear trap
  • Wrapping Up

A bear trap is a trading pattern reflecting a misleading reversal, a temporary but sudden downtrend after a long-term uptrend that is quickly followed by a sharp stock rally.

In other words, a bear trap is an investing pattern that happens when falling security that is losing its value suddenly starts reversing and begins gaining value instead. It means an upward market trend suddenly stops, and a short-term downward price movement starts. It also happens when a stock begins falling unexpectedly, Thereby maintaining an upward trend.

This bearish momentum quickly transforms into a market reversal, followed by a sharp rally, creating a trap for traders. During this time, bearish investors who have shorted or bet against that stock may face some losses.

This is usually done by institutions to set up the trap by pushing the prices lower to create more demands and drive prices higher. The prices of a particular token fall also by mutual coordination among the sellers.

You May AlsoLike

Crypto Trading Bots for Beginners in 2024

Crypto Trading Bots for Beginners in 2024: Top Picks, Tips, and Strategies

September 20, 2024
DeFi vs Cryptocurrency- Key Differences Explained   

DeFi vs Cryptocurrency: Key Differences Explained   

September 20, 2024

They collectively sell a specific token which causes it to drop. Aside from stocks, the pattern is more common in trading equities, currencies, bonds, cryptocurrencies, CFDs, and futures.

Relatable: CRYPTO BEAR MARKET OPPORTUNITIES

How does a bear trap work in crypto markets?

Bear Trap: What Is It And How To Avoid It

A Bear trap is a sort of manipulation. Traders can identify a bear market based on the decrease in prices of stocks, crypto, or indices. If the fall is detected to be around 20% or more than that from the all-time high over the two months, then the market is considered bearish.

This bearish condition is susceptible enough to create a trap for novice traders. Seasoned traders keep know-how of the market indices and purchase the currency when the market is down. This time is marked as a point when most investors want to buy the assets at low prices but hardly find any sellers.

After bringing the market down, influential traders buy back the quantities sold at these low rates. Those traders with short positions would rush to buy crypto to limit their losses. This buying momentum results in taking the price even higher.

Therefore, by selling at a higher price and buying back all sold positions at a relevantly lower price, the trader group or bear trap setters’ intent is to profit from the difference without affecting the quantity of crypto held by them in the long term.

Difference between bear trap and short-selling

Bear trap and short selling are not the same things. These are two different terms. A bear trap includes short selling a stock or other crypto investment security. But, a decrease in price triggers a bearish investor on a short scale.

The investors do this to profit if the price continues to fall. But this is a quick reversal and rapid price increase that results in short-sellers facing a great loss.

We can understand the difference between a bear trap and short-selling by understanding that a bear is a trader or an investor who plays in the financial markets and believes that the security price is about to fall.

A bearish investment strategy gains profit from the decrease in the price of an asset, and a short position is used to implement this strategy.

A short position is a trading technique that borrows shares or contracts of an asset. This trader or an investor sells those borrowed instruments to buy them back when the price declines, thereby booking many profits.

Short sellers are bound to cover positions as prices increase to lessen losses. This increase in buying activity results in a further increase, which can continue to fuel price momentum.

Therefore, a bear trap is preceded by short-selling crypto by many investors who possess large token holdings and ends when they either close their derivative positions, buy back their shortly sold crypto positions, or a combination of both.

Is a bear trap bullish or bearish?

Bear Trap: What Is It And How To Avoid It

Considering both the increase and decline of the market, a bear trap can be traded by both the bullish and bearish traders by using markedly effective trading strategies.

Sometimes, a bear trap unsettles traders and market participants, as it includes the underlying asset undergoing a change in the momentum that is contrary to the bullish trend before quickly reversing again, to restart its upward journey.

If the asset’s price moves beyond the current resistance level, it can be a great sign and may be considered a buying signal by a bullish trader. Contrarily, bullish traders may employ a strategy that simultaneously sells calls and puts of key price levels to gain a wide range of profit.

Identifying bear trading

Bear trading can be identified usually by many indicators and analysis tools such as Fibonacci levels, RSI, and volume indicators and they are usually to confirm if the trend reversal after a period of consistent upward price movement is genuine or merely meant to invite shorts.

Avoiding a bear trap

  1. Start a Bigger stop loss.
  2. Avoid Trading the initial breakout, and instead, go for the retracement
  3. Start following the bigger trend
  4. Pay heed to the two candlesticks following the breakout
  5. Use technical analysis and trading indicators
  6. Checking the news

Wrapping Up

A bear trap is temporary, but a decline in the market occurs after a long-term rise which is quickly followed by a sharp rally of the stock or crypto. Big market players such as influencers and investors take benefit from this strategy.

It is usually suggested to avoid trading during these unstable and abrupt reversals until and unless price and volume action confirms a trend reversal below an important support level. It makes sense to retain crypto holdings during these times and avoid trading unless prices become stable or at the stop-loss level.

Exercising such things can be more difficult sometimes, especially when one factor in the high volatility is associated with most crypto in trade today. So, It is better to avoid trading during the bear trap for long-term investors looking for profit without high risks.

Also Read:

THE 4 KEY FACTORS INFLUENCING THE PRICE OF CRYPTO 

THE RISKS OF CRYPTOCURRENCY TRADING

CRYPTO SEASONALITY: STRUGGLING TO DEAL WITH IT?

Tags: cryptocrypto for beginnersmarket analysisstockstrading
Share76Tweet47
ADVERTISEMENT
Previous Post

Yield Farming: Everything you need to know before Investing

Next Post

Can Crypto Holders Recover Losses In Court?

Hania

Hania

Hania is a 30-year-old blogger who used to be a teacher before entering the world of writing. She is originally from India and has been writing blogs on various topics for 2 years now. Hania is particularly interested in exploring the intersections of finance, technology, and cryptocurrency. Her experience as a teacher has given her unique insights into the ways in which digital media can be used to facilitate learning and engagement. Through her writing, Hania hopes to share her knowledge and learning of crypto industry with everyone.

Related Posts

Crypto Trading Bots for Beginners in 2024
Beginner Guides

Crypto Trading Bots for Beginners in 2024: Top Picks, Tips, and Strategies

September 20, 2024
DeFi vs Cryptocurrency- Key Differences Explained   
Beginner Guides

DeFi vs Cryptocurrency: Key Differences Explained   

September 20, 2024
7 Key Indicators of an Approaching Crypto Bear Market
Beginner Guides

Is a Crypto Bear Market Approaching? 7 Critical Indicators and How to Prepare

September 17, 2024
ETPs vs ETFs: A Comprehensive Guide for Crypto Investors
Beginner Guides

ETPs vs ETFs: A Comprehensive Guide for Crypto Investors

September 10, 2024
What is the Risk-Reward Ratio in Crypto Investing?
Beginner Guides

What is the Risk-Reward Ratio in Crypto Investing?

September 2, 2024
How to Spot Crypto Scam Ads on Social Media: Protecting Your Investments in a Deceptive Landscape
Beginner Guides

How to Spot Crypto Scam Ads on Social Media: Protecting Your Investments in a Deceptive Landscape

August 30, 2024
Next Post
Can Crypto Holders Recover Losses In Court

Can Crypto Holders Recover Losses In Court?

Discussion about this post

Live Prices

Stay Connected

You May Also Like

  • MetaMask Ethereum Wallet Expands Support for Both Bitcoin and Solana

    MetaMask Ethereum Wallet Expands Support for Both Bitcoin and Solana

    196 shares
    Share 78 Tweet 49
  • Why the Bitcoin Halving Is Happening Sooner Than Anticipated

    237 shares
    Share 95 Tweet 59
  • Solana Futures Launch at CME Boosts Price Amid High Demand

    191 shares
    Share 76 Tweet 48
  • Cardano (ADA) Staking Now enabled by Trust Wallet

    190 shares
    Share 76 Tweet 48
  • March 2025 Polymarket Bets Boom for Bitcoin, XRP, ETH, AI, and DOGE – The Future of Cryptocurrency Trading!

    195 shares
    Share 78 Tweet 49
  • About Us
  • Contact Us
  • Work With Us
  • Privacy Policy
  • Terms Of Service

© 2022-2024 CryptoMufasa - All Rights Reserved!

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms bellow to register

*By registering into our website, you agree to the Terms Of Services and Privacy Policy.
All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • General News
  • Beginner Guides
  • Bitcoin News
  • Ethereum News
  • Altcoin News
  • NFT News
  • Price Predictions
  • Google News

© 2022-2024 CryptoMufasa - All Rights Reserved!

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
Don’t Miss Out on the Best in Crypto!

Stay ahead with a weekly digest of the top news and insights—no spam, no ads, just the essential updates delivered straight to your inbox. Subscribe now for valuable content you can trust!

johnsmith@example.com
subscribe to email

Never see this message again.