Bear Trap

A condition when the currency pair is decreasing in the price and traders stay on a short position only to wait for the reversal of price and move higher is called Bear Trap.
According to bearish traders the recent price action indicates that an uptrend has ended when it actually has NOT.
Although the decrease goes further , the price stays flat or the uptrend resumes.
A bear trap results in a false trend reversal when the price is in an uptrend.


Bear Trap



How a Bear Trap Works


The traders particularly, the institutional traders who “set” the bear trap and make other traders fool by hinting that the uptrend has gone or decreasing.
The traders attracted to enter in the short position due to bear trap and expect that the price will decrease continuously which doesn’t happens actually.
The gullible and/or amateur traders stays in to the bear trap will often go short, thinking price will drop further.
They think to be reach as early as possible and start shopping online
At that point, the institutional traders who set the trap will buy at the lower price and will release the “trap”.
This counter move produces a trap and often leads to sharp rallies.
Eventually, they are forced to exit out of their short positions.
To exit a short position requires buying, so this buying pressure will cause the price to rise even further.
The bears are caught in a trap.
Once the bear trap is released, the price usually resumes its uptrend.

 

A

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