A bear trap occurs when the price of a financial asset appears to be steadily declining, leading investors to anticipate a further drop. In response, they short-sell, hoping to profit from the continuing downtrend. However, instead of continuing to fall, the price suddenly reverses and starts to rise. This unexpected movement ensnares investors, causing them to incur losses as the price increases.

Bear traps provide a false technical indication of a reversal from a downtrend to an uptrend, deceiving traders who expect the decline to persist. When the price rises unexpectedly, those who have short-sold are forced to buy back at higher prices to cover their positions, often resulting in significant losses.

These traps highlight the psychological and speculative elements of trading. They serve as a cautionary example of the risks associated with misinterpreting market signals and the potential consequences of trading in the wrong direction based on faulty analyses.