Glossary
Bear trap
A false breakdown below support that lures traders into selling short just before price reverses higher.
A bear trap is a price move that appears to break below an important support level, convincing traders a decline is under way, only to reverse quickly and climb back above that level. Traders who sold or shorted on the breakdown are "trapped" in losing positions, and their need to buy back can add fuel to the rebound. It is the downside mirror of a bull trap.
How it unfolds
- A stock holds a clear floor several times, say $40.
- Price drops through it, often on a news headline or in a weak broad market. Stop-loss orders below $40 trigger, and breakdown traders open short positions.
- Selling dries up. Within a few sessions price closes back above $40.
- Shorts cover, pushing price higher still.
Spotting and handling them
No signal identifies a bear trap in advance; it is only confirmed once price recovers. Clues traders look for include a breakdown on light volume, a quick close back above support, bullish divergences in momentum indicators and a broad market that is stabilizing. Many breakdowns, however, are real and keep falling.
Common defenses are waiting for a close beyond the level instead of reacting to an intraday break, requiring a retest, and keeping stops at points that would genuinely invalidate the idea rather than just past an obvious level where many orders cluster.