A Bear Trap is a false market signal where the price of an asset initially shows signs of a strong downward trend, leading investors to believe that the asset will continue to decline in value. However, after these investors sell or short-sell the asset, the price reverses and starts to rise. Those who sold or shorted, expecting further price decreases, are now “trapped” in a losing position. Essentially, it’s a situation where bearish investors are misled into thinking the downward trend will continue, only to be caught off guard by a subsequent price increase.
Bear Trap
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