Bear Trap

A Bear Trap is a false bearish signal within a bullish trending market. Basically, this price drop leads investors to believe that the market is undergoing a reversal from bullish to bearish (a bearish trend phase). Investors, in order to minimise their losses, are led to exit the market immediately, selling their assets.

However, after a brief descent, the market continues in a bullish trend, causing investors to miss out on potential gains.

The term Bear Trap owes its name to the Bear Market, a market phase characterised by a generally negative trend.
The Bear Trap is a trap in all financial markets, including cryptocurrencies and traditional instruments, and is not to be confused with the Bull Trap, a bullish trap in a bearish trending market.

It is not possible to accurately predict market movements, but in general there are some recurring causes that can generate a Bear Trap.

These traps can be caused by trades of the same type made simultaneously (or within a short period of time) by a group of investors. If several traders sell an asset, its price will fall due to the law of supply and demand. This movement could generate a Bear Trap and push other traders out of the market.

How to recognise a Bear Trap? Although there is no foolproof statistical tool or mathematical formula, it can be useful to conduct a careful technical analysis of the market.

For example, to try and spot a Bear Trap, you can look at the trading volume of an asset, i.e. the sum of the quantities sold and bought in a certain period. When a market is clearly entering a bearish phase, most institutional investors will try to exit the market by selling their securities. As a result, an increase in trading volumes will be observed. If, on the other hand, the trading volumes of an asset remain unchanged, we are probably facing a Bear Trap.

The financial market, however, is impossible to predict: it is important for every investor not to be overwhelmed by their emotions, and to carry out an analysis based solely on factual data before each trade.

Correlated words

Dividend

Profit received periodically in exchange for participation in the shares of a company

Diversification

The strategic inclusion of assets with different characteristics in the investment portfolio

Drawdown

Indicator that calculates the difference between the maximum and minimum price of an asset over a specific time period.

Floor price

The minimum price at which an asset can be purchased.

Bitcoin Dominance

The percentage ratio between Bitcoin's market cap and that of the entire crypto market.

Pair

Two currencies traded against each other on a crypto or forex exchange

Price action

The behaviour of the price of a financial instrument over time.

Relative Strength

A chart describing the performance of a pair of cryptocurrencies by comparing their price performance.

Breakout

In a price chart, the breaking of a resistance or support leading to an increase in volatility and trading volumes.

Bull Run

Market phase characterised by a bullish trend, associated with positive investor sentiment.

Rally

A sudden and rapid rise in the price of an asset or market index, caused by increased demand from investors.

Fakeout

A market situation in which the observed price trend is different from that predicted by an investor, falsifying their expectations.

Market Mover

A factor capable of influencing the development of a market and the level of prices.

Mutual Funds

Mutual funds are financial instruments that combine the capital of several investors into a single asset.

Bull Trap

In a bearish market, a bull trap is an upward price movement that, like a trap, can be deceptive.

Volatility

In economics, volatility indicates the variation of the price of a financial instrument through time.

Supply and demand

In economics, supply and demand correspond to the two main market variables and describe the behaviour of those who buy and sell goods or services.

Volume

The amount of currency traded in a given period.

Market Trend

A perceived tendency of financial markets to move in a particular direction over time.

Trading

Trading is a speculative activity of buying and selling financial assets, with the goal of making a profit.

Stop Order

A trading order that allows you to set a price at which another order is triggered.

Slippage

The difference between the execution price of an order and the price entered in the order.

Support and resistance

Support and resistance are two technical analysis tools used to monitor the price trend of an asset.

ROI

A value that measures the return generated by an investment.

Pump&Dump

A strategy that inflates the price of a cryptocurrency to generate profits only for those who implement it.

Prediction Market

Exchange-traded markets created for the purpose of trading the outcome of events.

Order Book

The list of all the prices at which traders are willing to trade a certain amount of cryptocurrency on an exchange.

Oracle

A service that collects data not available on blockchain, verifies it and provides it to smart contracts

Moon

When the price of a cryptocurrency rises very fast, they say it soars 'to the moon'.

Market Order

Instant buy or sell at the next best price available on the market.

Market Maker

Companies or organised entities that, in partnership with an exchange, are always willing to buy and sell a cryptocurrency.

Market Cap

The total value of all the coins or tokens of a cryptocurrency in circulation.

Limit Order

A buy or sell order that is executed only when the cryptocurrency reaches the set price.

Futures Contract

A contract that regulates the execution of a transaction at a predetermined price on a specific date.

FUD

Fear, Uncertainty and Doubt refers to a negative market sentiment

Circulating Supply

The number of units of a cryptocurrency available on the market.

Forex

The Foreign Exchange Market allows fiat currency trading.

FOMO

Fear Of Missing Out is an expression often used in the context of trading and cryptocurrencies.

ETF

ETFs are passively managed investment funds that replicate the value of a reference index called a benchmark.

Buy Wall and Sell Wall

High number of purchases or sales demanded at a certain price.

Bull Market

A market where there is an upward price trend

Break-Even point

The balance point between losses and gains, income and expenditure.

Bid and Ask

In the order book, these are the prices at which an asset is offered or demanded.

Benchmark

A standard for measuring the performance of a financial instrument or market.

Bear Market

A market phase characterised by price lows.

ATH and ATL

Acronyms used to indicate the maximum and minimum price of a cryptocurrency.