What is a bear trap?

What is a bear trap?

"Bear trap" is an illegal act of profiting by deceiving retail investors into buying at high prices. It is usually carried out by criminals through the following methods:

Features

1. Position Cost Distribution:

Block Orders or operators concentrate a large amount of chips at a low level in advance, controlling most of the circulating chips.

2. Deliberately Pushing Up:

Using the advantage of funds to quickly raise the stock price, creating the illusion of a strong rise.

3. Attracting Retail Investors to Chase High:

Spreading 'insider information' through social media, WeChat groups, forums, etc., to attract retail investors to buy at a high price.

4. Swiftly Dumping Stocks:

At a high stock price, operators quickly sell off chips while retail investors are chasing high, causing a stock price collapse.

5. Stock price plummet:

After selling off, due to the lack of new funds taking over, the stock price rapidly declines, causing severe losses for retail investors.

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Is it a scam?

The following situations may involve fraudulent activities:

1. Artificial manipulation

If the significant rise and fall in stock price is due to artificial manipulation (e.g. pushing the stock price through controlling the position cost distribution or false publicity), it may constitute market manipulation.

2. False information

Criminals use the spread of 'insider information' or false Bullish news to attract retail investors to chase High Stock Price, which is a typical fraudulent method.

3. Involvement of Block Orders manipulation

Block Orders use their financial advantage and information asymmetry to buy in at low levels and sell at peak levels, which constitutes market manipulation behavior.

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How to determine if it is a Ponzi scheme or a scam?

1. Abnormal fluctuations in Stock Price

Sharp and significant increase in Stock Price within a short period, accompanied by a significant increase in Volume.

2. Suspicious news sources

If the so-called Bullish news comes from an unknown source or is spread through Social Media, extra caution is needed.

3. Abnormal Volume

High Stock Price with stagnant trading volume, followed by a sharp single-day decline.

4. Lack of Fundamental Financial Support

The fundamental financials of the target company show no significant improvement, and even a decline in performance, yet the stock price rises rapidly.

5. Presence of Insider Groups

If Stocks are recommended through WeChat groups, QQ groups, etc., especially with 'promised returns', it is likely a scam.

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How can retail investors avoid becoming the "ultimate fool"?

1. Increase vigilance

Do not easily believe in "insider information" or "guaranteed returns" recommendations, especially from strangers or unverified information.

2. Verify fundamentals

Carefully analyze the fundamentals of the target company, such as profitability, industry prospects, financial conditions, etc., to avoid being misled by false bullish signals.

3. Avoid chasing high stock prices

Remain cautious of stocks that rise too quickly without fundamental support, and avoid blindly chasing stock prices at high levels.

4. Learn to set profit-taking and stop-loss strategies

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During the uptrend, there is frequent dissemination of 'insider information' in WeChat groups, claiming that the stock price will break through 50 yuan.

2. Results:

The stock price stagnated at a high level of 20 yuan, then plummeted by 40% in a single day, and continued to hit the limit down for several days.

3. Losses for retail investors:

Retail investors who chased the high suffered severe losses, with some even losing up to 50%.

Implications:

Stocks involving high price volatility, information dissemination, and high-level crashes should be approached with caution.

Beware of the manipulative practices of 'bear traps'.

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Summary

Characteristics of manipulation and retail investor behavior

Trading suggestion

1. Stay vigilant: Remain rational towards stocks that have experienced significant price surges, avoid blindly following the trend.

2. Analyze fundamentals: Ensure that the price increase is supported by fundamentals, rather than solely by market sentiment.

3. Control risks: Set strict profit-taking and stop-loss levels to prevent significant losses during sharp declines.

4. Avoid suspicious stocks: Refrain from trading stocks influenced by opaque information, safeguard your capital.

The manipulation and related fraudulent activities exploited the speculative psychology and information asymmetry in the market. Retail investors need to protect their capital by studying market patterns, enhancing their judgment, and maintaining disciplined execution to avoid becoming the ultimate bagholders.