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Thursday, October 6, 2022

Bear Trap- What Does It Mean In Trading?

For the unaware, a bear trap is simply a form of coordinated yet controlled selling that would create a temporary dip in the prices of assets. More often than not, most amateur traders do get caught out by the volatility in price when they are trading in the markets that usually deal with classes of assets like commodities, equities, cryptocurrencies, or even bonds.

While it is certainly recommended that one did stay invested in it for the long term, most reversals in price could make even the most experienced traders perplexed. This does it make it even more important to identify all the signs of a false reversal- which could also be seen as a momentary direction change in the direction of the price. 

Bear Trap In A Crypto Industry

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A bear trap’s increased volatility would have the power to lure even short-term traders into creating multiple trades that would simply be an attempt to time all of the markets. This would then end up resulting in deep losses for most while also impacting the conviction or confidence of the traders in the underlying asset. 

As it is seen in its mechanism when working with other classes of assets, a bear trap in the market of crypto also lures both bearish and bullish gambles- with severely disproportionate risks that were involved in it. In a crypto market, this usually serves as a form of market manipulation that is conceived through the concerted efforts of a group of traders who have a hold over the underlying cryptocurrency

Avoiding a bear trap can be quite difficult for most novice traders. The best hope one would have would be using the charting tools that were available online on most of the trading platforms and would also require some form of caution to be exercised.

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