Bear trap – A price increase trap is a form that appears a lot in the financial market, including trade coins. Whether you are an experienced trader or new to making money from Crypto, you still need to clearly understand the concept of What is a bear trap? From there, reduce risks and increase profits significantly. Below, Crypto Trading will help you clearly understand the Bear trap model, and distinguish between the Bear trap and Bear market.
What is a bear trap?
A bear trap is an English term that translates to bear trap, also known as a bear trap. In essence, this is a phenomenon of extremely rapid price decline occurring during an uptrend. Bear traps often break price support levels before suddenly returning to the upside. This encourages traders to open short positions after a major support is broken.
The bear trap causes many traders to sell short in order to make a profit in anticipation of future price changes. However, after this price trap period, the coin price will increase again. Many traders feel sad because they lost the opportunity to make a profit, and even sell at a loss.
In essence, the bear trap is a form of short selling with collusion, but only temporarily. Usually, newbie traders are very sensitive to this bearish trap. Some experienced traders were also confused by the sharp reversal. Therefore, you need to be alert and analyze this as a temporary sign of reversal.
Morphemes What is a bear trap?
Bear traps have the following common forms:
- Pattern 1: If the bearish price breaks and closes below support while the first or second candle following that break reverses to the upside.
- Pattern 2: If the price decline surpasses the support level and continues to go down, eventually closing above the support price and forming a bullish candle.
- Form 3: This is a combination of the above two types. If the price falls above the support level then goes down, eventually closing at the price above the support line. At the same time, the first or second candle is followed by a bullish reversal candle.
Cause of appearance What is a bear trap?
Bear traps can suddenly appear during any period in the market. Here are some common causes of bear traps in coin trading:
- Manipulative sharks: These are large-cap and influential organizations. When the price nears the support level, the shark group will create virtual sell orders, causing the price to drop sharply. At this time, inexperienced traders were blindsided and massively placed Sell orders. Meanwhile, the shark team is silently placing Buy orders to collect goods at low prices.
- The psychology of wanting to take profits: When the price uptrend has been going on for a long time, many traders tend to want to take profits. When many traders sell and make profits at the same time, it will cause the price to decrease temporarily. When the Sell order volume gradually reduces, the market will follow the upward momentum again.
- Negative events: Bad news released during a bull market will cause prices to fall in the short term.
See more: Capture fluctuation volatility trading professionally
Identification signs What is a bear trap?
To avoid trapping a bear, you need to know how to identify it through the signs below:
- Volume (after breakout): Normally, if the pullback is a true reversal, volume will increase steadily. But if the volume increases and decreases erratically, it proves that there is a high possibility of manipulation by sharks to create bear traps.
- RSI is in the oversold zone: RSI is an indicator that helps traders have a comprehensive view of price changes. Accordingly, if the price surpasses the bearish support zone while RSI is still in the oversold zone (ie RSI < 30), the upward reversal trend will return. This break is essentially a bear trap.
- Important Fibonacci milestones: Fibonacci is also a tool that helps traders identify bear traps relatively effectively. For example, when the price is in an uptrend, if it breaks the bearish support and Fibonacci levels at 23.5%, and 38.2%,… this is most likely a bear trap.
Methods to avoid magnetic traps What is a bear trap?
To avoid the Bear trap’s deception, you need to:
- Improve your basic knowledge: Understand the types of tokens/coins you hold or are trading. In addition, it is necessary to build a system of related knowledge such as markets, technical analysis, price action, market psychology,…
- Psychological control: Traders often lose money if they randomly enter orders, sometimes blinded by greed. Therefore, in order not to make mistakes, you need to develop clear rules.
- Quantity limit: You should limit the number of tokens/coins. You should not invest too much but it is ineffective. You should monitor price action to understand crowd psychology habits. Take time to analyze and plan your coin purchases.
- Stop loss rule: You should only enter an order when the price goes according to the predetermined scenario. You should not constantly observe the market, it is easy to be influenced by greed. Trading volume and loss per trade should only be 2-5% of the account.
- Use appropriate leverage: According to your trading ability/experience, you will choose the appropriate leverage level. Do not use high leverage in a bear trap, you will incur heavy losses.
See more: Instructions for opening an MEXC global account
What is a Bear Market? Is it like a Bear trap?
Many people confuse the concepts of Bear trap and Bear Market. Below, we will learn more about the two types of markets: Bear Market and Bull Market.
What is a Bear Market?
A bear market translates as a bear market, describing a long-term declining state of the market. In the Bear market, coin prices continuously decrease. This affects traders’ psychology, thinking that the market will continue to decline, causing the downward spiral to prolong. Thus, the bear trap is just a trap, and the bear market is the actual market trend.
What is a Bull Market?
A bull market is a bull market, describing the growth state of the market. In the Bull market, coin prices increase continuously. Traders believe that the uptrend will continue in the long term. Many investors want to buy more.
Effective coin trading method when encountering Bull Market and Bear Market
Bull market:
- Take advantage of the uptrend to determine reasonable buy/sell points, thereby making profits.
- In a bull market, there will sometimes be a short-term price decrease. Therefore, you should hold strong coins, take advantage of price drops to accumulate, and increase the proportion of that coin in your portfolio. At the same time, reduce the proportion of poor coins.
Bear Market:
- Traders should choose stablecoins. What is stablecoin? It is a type of cryptocurrency that tracks the prices of other coins. The goal is to reduce price fluctuations in the market.
- For traders who tend to be net buyers, they really like the coin falling. At this time, they will apply the DCA (price averaging) strategy to minimize the impact of price fluctuations.
Conclude
Above, Crypto Trading has provided readers with the information they need to know about What is a bear trap. Hopefully, through the article, traders can master the knowledge of bear traps. From there, recognize and avoid this pattern. Follow Crypto Trading’s next articles to be more successful in the cryptocurrency market.
FAQs
What is a bear trap in coin trading?
A bear trap is an English term meaning bear trap. This is a sudden decrease in price during an uptrend. This price trap pattern often breaks the support level before the price reverses to the upside.
Is the bear trap bullish or bearish?
Bear traps include both bearish and bullish moves. Each trader will have a different trading strategy in the direction of buying or selling.
How to avoid bear traps?
You can recognize a bear trap by observing the trading chart. In most cases, you should combine it with analytical indicators such as RSI, Fibonacci, or volume. All of them help you determine whether the trend reversal is true or just temporary.
