A bear trap happens when the market gives the illusion of entering a downtrend, prompting traders to sell off their assets to avoid potential losses. However, instead of continuing to fall, the market abruptly reverses and starts rising again, leaving those bearish traders who sold off their positions caught off guard.
Bear traps often stem from market manipulation by big players like institutional investors or hedge funds. These entities can create a misleading bearish sentiment by offloading large quantities of an asset, causing smaller traders to panic-sell. Once these smaller traders dump their assets, the big players swoop in to buy at the lower prices, pushing the market back up and causing significant losses for the bearish traders who sold prematurely.
Understand how these dynamics work to better navigate the market! #IntroToCopytrading