Bear Trap

A Bear Trap is a false bearish signal within a bullish trending market. This movement confuses investors into believing that the market is undergoing a trend reversal and is entering a bearish phase (i.e. a downtrending market phase). In order to minimise their losses, investors are led to exit the market immediately.
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 present in all financial contexts, from trading to the cryptocurrency market. It is not to be confused with a Bull Trap, a bullish trap in a bearish trending market.
It is not possible to accurately predict market movements, but in general there are certain recurring causes that can generate a Bear Trap.

Certain events outside the market, such as a speech by an authority figure or changes in geopolitical order can lead to a momentary feeling of distrust or fear. This may momentarily lower the prices of a market, causing a Bear Trap.

Sometimes a Bear Trap can also be caused by coordinated movements of other investors within the market. If a group of traders simultaneously sell an asset, in accordance with the law of supply and demand, the price of the asset will fall. This movement generates a Bear Trap and pushes other traders out of the market. Then, this allows the initial investors to buy the asset again at a lower price and earn more profit, causing the price to immediately rise again.

How can you recognise a Bear Trap? Unfortunately, there is no foolproof mathematical technique. In general, it is important to make a careful analysis of the reference market and above all not to panic.
For example, if you have difficulty identifying a Bear Trap, you can take into account the trading volume. This figure is the sum of the quantities of an asset sold and bought over a certain period. When a market is 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 the trading volumes of an asset remain unchanged, you are most probably facing a Bear Trap.

The financial market is impossible to predict. It is important for every investor, if they suspect they are facing a Bear Trap, not to get caught up in their own emotions, and to carry out a careful technical analysis before each trade. 

Correlated words

Mutual Funds

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

Bull Trap

A bull trap is a short bullish movement in a bearish market which can mislead people just like a trap.

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

Supply and demand on a cryptocurrency exchange.

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.

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