A whale trap in cryptocurrency markets is a manipulative strategy employed by large-scale investors, commonly known as "whales," to mislead smaller traders and take advantage of their market actions. Here’s a detailed breakdown of how it works:

1. Deceptive Market Activity: Whales initiate massive buy or sell orders that give the false impression the market is heading in a specific direction. For example, they might place a huge sell order, causing it to appear as though a price decline is imminent.

2. Inducing Fear or FOMO: Observing these significant orders, smaller traders often react impulsively. Some might sell off their positions, fearing a price collapse, while others may rush to buy, worried they’ll miss out on a price surge.

3. Strategic Market Flip: Once the smaller players have adjusted their positions, whales either cancel their initial large orders or execute trades in the opposite direction. This sudden reversal causes the price to move contrary to the smaller traders’ expectations, allowing whales to buy assets at reduced prices or sell at inflated values, capitalizing on the confusion they created.

Whale traps tend to be most effective in markets with lower liquidity, where even a few large trades can create significant price fluctuations. To avoid falling into these traps, traders should remain cautious and refrain from making quick decisions based on abrupt market movements, which may not reflect the genuine supply and demand situation of the asset.

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