What is Bear Trap? How to Identify and Avoid Bear Trap

A price trap is a term that refers to a signal deceiving investors that the upward or downward trend has ended and the market may soon enter a correction phase, causing investors to hastily sell stocks. Bull trap, Bear trap causes significant damage to investors. So what are Bull trap, Bear trap? how to avoid these 2 price traps, or if you have fallen into the trap, how to limit losses? What are Bull Trap and Bear Trap?

Bull trap (also known as a price trap) is a reversal signal in a declining market. This signal often appears at resistance levels when the price begins to break through this level. Investors are happy, thinking that they have caught the new trend and quickly place a BUY order, expecting the price to reverse. But shortly after, the price turns around and continues the downward trend, triggering stop loss orders. Bear trap (also known as a price trap) is a bearish reversal signal in a market that is trending upwards. When the price starts to break below a support level, investors think that the market will reverse and quickly place SELL orders in anticipation of the new trend. Unfortunately, the price only drops slightly before quickly turning around and continuing the original upward trend. Bear Trap, Bull Trap Occurs When?

Both Bull trap and Bear trap can cause investors to lose a lot. Therefore, during the trading process, investors need to know when they occur to take timely preventive measures. Here are some common times when Bull trap, Bear trap occur: Bear trap When manipulated by the sharks in the market Investors with large amounts of capital are called "sharks" who have the ability to manipulate the market and create bear trap signals. They create continuous buy and sell orders to create false supply and demand with the aim of pushing down the stock price. Sometimes it will combine with negative news to make less experienced investors misjudge and place SELL orders. Taking advantage of this opportunity, the sharks will order at a low price to make a profit. When investors want to take profit In some cases, there will be a large number of investors feeling that the market has risen too much and wanting to take profits. This creates a temporary price adjustment effect. Especially on holidays, trading may not be allowed, so investors will rush to place orders. After this effect ends, the price will move in the original direction. Bull trap Large investors manipulate the market: 'Sharks' use money to continuously buy a stock to create a virtual price hike. Inexperienced investors will buy when they see the price increase. When the expected amount of money is reached, large investors start selling to profit. Price increase effect: this is also the point that makes investors easily fall into traps. Exploiting the psychology of the crowd, big players will place buy orders at the same time to create a temporary price increase phenomenon. Inexperienced investors will buy in, and when the buying volume slows down, the price will return to a downward trend. Affected by unexpected events: This happens when the market suddenly has an unpredictable event. In that case, investors tend to buy in bulk, creating a temporary price increase phenomenon. The Psychology of the Market Behind Bear Trap, Bull Trap Prices

For a bull trap, when the price increases and begins to touch the resistance, there will be 2 possibilities: either the price will turn around or it will break through the threshold and go up. At that time, some investors think that the price will breakout and reverse the increase, so they place a Buy order at any price (Market order) to be able to catch the trend, causing the price to break through the resistance threshold. The rest will expect the price to pull back before rising, so they have placed a limit buy order, causing the momentum of the price increase to decrease. During the tug-of-war phase, the price drops slightly, causing panic among investors who placed market orders. Some close their positions to limit losses, leading to further price declines. When the price triggers the stop loss of these investors, they quickly sell off, pushing the price even lower. This is the result of a Bull trap. In addition, when a strong downward trend occurs, outside investors often regret not entering the market earlier, especially for the majority of new and inexperienced investors. When the price level starts to break through the resistance level and even rises strongly, it indicates that the downtrend has begun to weaken. This signal has somewhat satisfied the psychology of those investors, who quickly join the game to make up for missed profits. Taking advantage of this still fragile psychology, a trap has been set by professional investors, as inexperienced investors place BUY orders in unison causing the price to rise, while seasoned investors are ready to sell at a high price. The excessive selling volume has caused the price to turn downwards. At that point, the 'weak' souls also begin to close positions to correct mistakes, pushing the price down even further. How to Identify Bull Trap, Bear Trap

Being able to identify whether a breakout is a bear trap or a genuine good signal is very useful for investors to seize opportunities for profit or avoid risks. Here are some of the most popular tools such as: Fibonacci, price action and convergence/divergence signals from indicators. The common steps to identify whether a breakout is a trap or a real breakout: Step 1: Identify important price zones and resistance/support levelsStep 2: When the price starts to break through the resistance/support levels, use identification tools to determine whether the price is reversing or not. Note: the price may break through and reverse within the same trading session or may break through and revert back after a few sessions. Fibonacci Fibonacci is one of the tools that has assisted very well in identifying price traps. When the price breaks through resistance or support, the breakout signal will also be a bull trap or bear trap if the price stops at one of the important Fibonacci ratios. Divergence or convergence between indicators and price Indicators used to identify bull traps or bear traps are usually RSI, MACD, Stochastic... In this article, Mytrade will illustrate using the MACD indicator as an example. A breakout of the trendline will act as a support level, forecasting the possibility of a bearish market reversal. However, at that time, there was a signal of convergence between the price and the MACD line and at the same time a strong bullish candle with a length greater than the bearish breakout candle ahead, indicating that a reversal is very unlikely, investors can determine that this is just a trap of the bear trap to avoid placing a sell order in this case. Price action When the market breaks important price levels, determine the price behavior through candlestick patterns and price patterns. If the price action aligns with the breakout, it is a breakout signal, and the market will reverse. Otherwise, it is just a bull trap or bear trap. The market is in an upward trend when the price starts to decline and surpasses the support level. In this case, if investors see the price plummet and immediately place a Sell order, it will be very risky. In this situation, it is necessary to wait for the candlestick to break and observe it along with a few subsequent trading sessions. In this scenario, the breaking candlestick is a bullish pin bar with a relatively long tail, indicating strong buying pressure and that the price cannot decline further. You can also predict that this is a bear trap through analyzing price actions. The price broke the trendline twice, which was acting as a support level. If investors act hastily, they may place a sell order, thinking that the price will break this support level and reverse the trend sharply downwards. However, right after that, a Bullish Engulfing pattern was formed and the price quickly increased. This is a bear trap. Effective Ways to Prevent Bull Traps and Bear Traps Bear Trap and Bull Trap are phenomena of virtual price fluctuations that often only occur over a short period of time. Therefore, during the trading process, investors need to actively guard against price traps with the following strategies: Build a strong knowledge foundation: When equipped with sufficient knowledge, you will know what the market looks like and what factors can affect prices, thereby avoiding price traps. Know how to manage capital most effectively: This not only helps you avoid price traps but also reminds you whenever you trade. It is best to use appropriate leverage and never invest heavily without certainty. Also, always remember to set stop loss and take profit in every transaction. Understand the market: Understand the principles of trading and market analysis, as well as how to use indicators for technical analysis. From there, you will be able to identify true reversal signals and avoid price traps. Conclusion Bear Trap, Bull Trap continuously appear in the financial market, so understanding the information about price traps is extremely important to minimize risks in trading. Therefore, hopefully, sharing what Bear Trap is by Mytrade will help you gain more useful knowledge and invest effectively. DYOR! #Write2Win #Write&Earn $BTC {spot}(BTCUSDT)