A whale trap in the crypto market is a manipulation tactic where large investors, known as "whales," create false price movements to deceive smaller investors. Here's how it typically works:
1. **Price Pump**: Whales buy a significant amount of a cryptocurrency, causing its price to rise rapidly. This upward movement entices smaller traders (retail investors) to think that the market is bullish, prompting them to buy in at higher prices, hoping for continued gains.
2. **Price Dump**: Once enough retail traders have bought into the rising price, the whales start selling off their holdings, causing the price to plummet. Smaller investors who bought at the higher prices end up facing losses as the market reverses.
3. **Profit for Whales**: The whales profit from buying low and selling high, while smaller traders get caught in the sudden price reversal, often referred to as "getting trapped."
This tactic is common in highly speculative or less liquid markets, where a few big players can move prices significantly. Itâs a risk for those who react to short-term price movements without fully understanding the underlying market dynamics.
