What is a bear trap?

Bear Trap

The attempted manipulation of a specific cryptocurrency’s price, based on the coordinated activity of a group of traders.

What is a bear trap?

A bear trap will generally involve a number of traders who have significant combined holdings of a cryptocurrency.

Together, they will arrange to sell a large amount of that coin at the same time. The intention is to persuade other market participants that a price correction is taking place and for them to sell their own holdings in response — thus driving prices down even further.

At this point the bear trap will be “released” — and the group will buy back their assets at the lower price. The value of the coin then rebounds, and the trap setters have made a profit.

Bear traps originated on the stock market. However, in this context, the term is used to describe both the technique and the specific technical indication of a reversal in a market downtrend.

They can occur over several days or within a matter of hours, and begin when the demand for stocks outweighs the number of holders willing to sell. The buyers then increase their bids — attracting more sellers and pushing the market upwards.

Stock holders only realize profits when they sell the shares, meaning that higher rates of acquisition also increase pressure to sell. In response, institutional investors dump stock in the hope that less-skilled market participants will sell their own stock too, pushing prices down.

When prices have fallen to the institutions’ desired level, they then buy back large amounts of the stock — pushing prices back up and making a profit.

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