Bear Trap

A bear trap is a false technical signal that tricks short sellers and bearish investors into establishing short positions — by briefly breaking below a key support level and appearing to confirm a bearish breakdown — before sharply reversing upward, trapping the short sellers in losing positions that they are then forced to cover at higher prices, further fuelling the upward price move. Bear traps are deliberately exploited by institutional participants who accumulate shares at the artificially depressed prices created by the false breakdown, before pushing prices aggressively higher. Bear traps are characterised by: a break below a well-defined, widely watched support level (such as a 52-week low, a major moving average, or a long-standing horizontal support), low or declining volume during the breakdown (suggesting lack of genuine selling conviction), followed by a swift and sharp reversal back above the broken support on expanding volume. In Indian equity markets, bear traps are most common in heavily shorted or widely watched stocks where the support level is so well-known that a temporary breach below it automatically triggers a wave of stop-loss sell orders and fresh short positions — creating the exact conditions that allow informed buyers to accumulate at temporarily attractive prices before the recovery.