What is a bear trap?
A bear trap is a market phenomenon that occurs when a market starts to decline, prompting traders to sell assets to avoid potential losses. However, the actual market trend did not continue to decline as expected, but unexpectedly reversed quickly and rose again, which put bearish traders who made selling decisions based on the market's further decline in a dilemma.
The occurrence of this phenomenon is often closely related to the operating strategies of large market participants (such as institutional investors or hedge funds). They have the ability to create a false atmosphere of pessimism by selling a large number of specific assets, thereby inducing panic among small traders and prompting them to follow suit.
Once these small traders leave the market, large participants take the opportunity to cover their positions at a lower price, which in turn drives market prices up, causing those bearish traders who sold in advance to suffer heavy losses.
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