A "whale trap" refers to a market situation where large investors (often called "whales") create a false sense of market direction to manipulate smaller investors. This can happen in various ways:
1. **Pump and Dump**: Whales buy a significant amount of a cryptocurrency, causing its price to rise ("pump"). This attracts smaller investors who fear missing out on potential gains. Once the price is sufficiently high, the whales sell off their holdings ("dump"), causing the price to crash and leaving smaller investors with losses.
2. **Bear Trap**: Whales sell off large quantities of a cryptocurrency to drive its price down, creating panic among smaller investors who then sell off their holdings. Once the price is sufficiently low, the whales buy back the cryptocurrency at a cheaper rate, profiting from the panic they created.
Understanding these traps is crucial for smaller investors to avoid falling prey to market manipulation and making informed investment decisions.