A Bear Trap

A bear trap occurs when the price of a financial asset appears to be on a steady decline. This leads investors to expect a further drop, and they short-sell to profit from the continuing downtrend. The trap is now set: instead of continuing to fall, the price suddenly reverses and goes back up. Investors get ensnared, taking on losses as the price of the security continues to increase.

A bear trap is a false technical indication of a reversal from a down-trending market to an up-trending one that can trap unsuspecting shorts.

Bear traps bring home the psychological and speculative elements of trading. They are a cautionary example of what can happen when analyses lead you to trade in the wrong direction.