What is a bear trap in crypto and how to not get caught?

Bear traps are the technical patterns common in bullish markets. They happen in cryptocurrencies, forex, stocks, and futures markets, and are just one of the parts of the market cycle.

Just like bull traps, bear traps can be dangerous for investors and traders who failed to recognize the fake price reversal signal. Let’s have a closer look at what exactly a bear trap is. Bear traps are the short downtrends among the positive market sentiment. In other words, when the uptrend is dominating crypto, a brief price drop would shape a bear trap.

Such patterns take place because the traders believe that the trend reversal will start soon, and go short. They’re expecting to be the first ones to gain profit as they were the first ones to recognize the beginning of the bearish trend. However, a bear trap got its name because of its tricky nature. In fact, it’s not the start of the bear market but just a temporary drop in the coin’s value amidst the bull market.

In such a way, bears will be losing their investments in a long-term perspective. The only option here is to sell assets even at an unfavorable price not to lose even more money in your short positions.

Bear traps are nothing to be scared of if you focus on technical indicators. Among them: trading volume, price actions, and Fibonacci levels — for traders who use more advanced tools. All these indicators show relevant up-to-date information and numbers on cryptocurrency prices. As a result, they help to foresee future market changes based on past performance and technical analysis.

In our article on CoinCasso website, we share more details on how and why bear traps happen and how to identify them.