A "whale trap" refers to a market manipulation tactic often seen in cryptocurrency trading. Here's a breakdown of how it works:
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1. **Large Buy Orders (Bait):** A "whale" (a trader or entity with a large amount of capital) places significant buy orders at a price lower than the current market price. This creates a perception that there is strong support at that level.
2. **Market Reaction:** Other traders see these large buy orders and assume that the price will not fall below this level, so they also start buying, which can drive the price up.
3. **Sell-off (Trap Trigger):** Once the price has increased to a desired level, the whale cancels their buy orders and sells off their holdings at the higher price, capitalizing on the artificial price increase.
4. **Price Drop:** Without the large buy orders to support the price, and with the whale selling their holdings, the price can drop rapidly, trapping traders who bought in during the artificial rise.
Whale traps can lead to significant losses for traders who are caught off guard by these sudden price movements. It's important to recognize the signs of potential manipulation and conduct thorough analysis before making trading decisions.