How To Avoid a Bear Trap When Trading Crypto

You may have come across the nursery rhyme: “We’re going on a bear hunt. We’re going to catch a big one. What a beautiful day! We’re not scared.”

In the financial markets, “trading a bear trap” is also an attempt to catch a big one. Maybe a bull market suddenly pauses, and markets that were rising begin to reverse. Thinking you’re going to profit handsomely, you sell your crypto, possibly even through short selling in the futures market. Suddenly prices rip higher against you. Better call for help — because you’ve just fallen into a bear trap.

This article will explain bear traps, what they look like specifically in crypto trading and how to avoid them. 

What Exactly Is a Bear Trap? 

A bear trap is a technical pattern that occurs when a new bearish trend in a stock or cryptocurrency price appears, often with short sellers pushing the market down, only to have a reversal and bounce to a rising price trend.