The Bear Trap: What it is and How not to fall for it
Masters of the trade and beginners alike are susceptible to the tricks of the market. In this article, we discuss the bear trap and how to avoid falling for it.
What is a Bear Trap?
A bear trap is an unexpected market event that causes prices to drop significantly which influences retail investors to sell at losses. Following this event, the market rebounds or even soars higher. This makes it an unfavorable re-entry for those who sold while benefiting the investors who recognized the trap and held through it.
How to identify a Bear Trap
Just as a real-life bear trap can be identified by its large size, metal jaws, and spring mechanism, you can identify a bear trap in the crypto market through certain characteristics.
Below are some common signs of a bear trap:
- Sharp price drop: If a token has been performing relatively well in a strong market, and all of a sudden, there is an immediate, but brief drop in price, this is possibly a bear trap.
- The token does not significantly fall below its support level: For instance, if Bitcoin falls to $65,000, this may indicate that we are in a bear market.
- Price goes back up: After the initial drop in price, the asset returns to its previous trend, and may even surpass its previous ATH in the coming days.
Example of a Bear Trap
Bear traps are common in the crypto industry, so there are many examples to choose from. A recent example is on January 13, 2025, when Bitcoin dropped to $91,000. This was a significant drop from its previous price of $100,000 a week earlier. At this point, some holders sold their assets, expecting a further drop below $90,000.
However, a week later, on January 20, the price of Bitcoin reached a new all-time high of $108,000. Here, traders who sold their tokens at $91,000 cannot re-enter the market except by incurring losses. Therefore, they have fallen for the bear trap.
How long does a Bear Trap last
A bear trap may last anywhere between hours to weeks. This means there may be a price drop that recovers within hours or days (like our example with Bitcoin) or even weeks, in extreme cases.
However, if the downward trend is consistent to the point where the token does not recover to its initial position or reaches new highs, it may be the start of a bear market.
Differences between a bear trap and a bear market
A bear trap may be confused for a bear market and vice-versa, which makes it important for market participants to know the key differences:
| Bear Trap | Bear Market |
| This occurs for a relatively short period and can span from hours to days. | This occurs for an extended time and can last weeks, months, and even years. |
| After the drop, prices surge back to the previous position, often higher | The price drops and doesn’t revert to its original position |
| No news or economic policies that may cause the token to lose value | Significant news and economic policies that may trigger fear, uncertainty, and doubt for investors |
| Market confidence remains intact and whales step in to retain the price | Market confidence dwindles and sell-offs are consistent with fewer buys. |
What is a Bull Trap
A bull trap is a market situation where the price of a cryptocurrency sharply rises, deceiving investors to go long or hold their assets in hopes of a breakout, but it reverses and falls rapidly.
By leveraging FOMO (Fear Of Missing Out) in other investors, whales can use this scheme to encourage more favorable market sentiment before selling off their investments. In the crypto space, this concept is mostly popular with memecoins that survive on hype.
Differences Between a Bear Trap and a Bull Trap
A bear trap and a bull trap exhibit comparable mechanisms because they are both market situations where the price of an asset seems to move in a different pattern, only for it to revert to its original trend.
However, to make it clearer, here are some differences between the two concepts:
| Bear Trap | Bull Trap |
| The prices sharply drop before they go back up | The prices sharply go up before they go back down |
| This trend causes traders to sell at the sharp lows, expecting the market to go lower | This trend causes traders to hold and accumulate more assets in hopes that a breakout is imminent |
| This operates on FUD, stop-loss hunting, and whale accumulation. | This is typical of pump-and-dump schemes, overhypes, and false bullish sentiments |
What is a Market Correction
A market correction is a price reduction of cryptocurrencies (usually around 10% – 20%) that occurs after a period of excessive and rapid price increase of assets driven by hype, FOMO, and other forms of speculation instead of real value.
A market correction is a normal cycle that helps ensure that assets are not overvalued and don’t rely on speculative bubbles. It is caused by some investors taking profit or FUD. However, after a period of time, the price stabilizes and the upward trend continues.
Tips to help you Dodge Bear Traps
Imagine you are going on an adventure through the woods and you encounter a suspicious pile of leaves. The wise decision would be to walk on the clear path. This can save you from unexpected disasters, such as a bear trap.
Likewise, in the market, there are tips you must follow to save yourself from the predicament of selling low and missing the highs. Here are some of them:
- NEVER FUD: You should never let fear, uncertainty, and doubt determine your decisions in the market. if these factors guide you, you will likely make impulsive decisions that will affect what should be long-term profits.
- Buy the dip: Instead of selling assets at lows, take advantage of the lower price by accumulating more assets to increase profit potential when the price surges.
- Use stop-losses: Have a safety net that protects your investments from an extreme drop in prices. This helps you reduce risks and prevent significant losses.
Conclusion
The market is always unpredictable, but it does go through cycles and patterns that every cryptocurrency investor must be familiar with to maximize profits. These include bear traps.
A bear trap is not necessarily a whale market manipulation tactic but it often is. The aim is to cause FUD (Fear Uncertainty, and Doubt) among retail investors, leading them to sell and lose their positions or to weed out weak hands. Subsequently, the whales reinject their liquidity into the market, making the price soar back to its original position or even higher.
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Please be advised, that this article or any information on this site is not an investment advice, you shall act at your own risk and, if necessary, receive a professional advice before making any investment decisions.
