A bear trap occurs when a price trend temporarily declines, leading traders to believe that a longer-term downward movement is underway. As a result, many may enter short positions, anticipating further declines.

However, the price suddenly reverses, rising instead. This unexpected bounce often triggers stop-loss orders from those who shorted the asset, causing more sell-offs and pushing the price even higher. The bear trap can create panic among short-sellers while offering opportunities for those who recognize the reversal.

Recognizing this pattern requires close observation of market indicators and trader sentiment. Traders can protect themselves by using risk management strategies and not relying solely on short-term price movements. Understanding the potential for bear traps can help traders make more informed decisions and avoid unnecessary losses.