A deceptive market situation in which the price of an asset appears to break below a key support level, enticing traders to open short positions or sell their holdings, only for the price to quickly reverse and rally. Bear traps can occur naturally due to stop-loss hunting around well-known support zones, or they can be engineered by large participants who sell aggressively to trigger a cascade of sell orders before buying back at lower prices. Recognizing bear traps is important for traders to avoid entering short positions on false breakdowns.
Example
“Bitcoin briefly dipped below the $30,000 support level, triggering a wave of stop-loss sells, but within hours price snapped back above $31,500 in a classic bear trap.”