Bear Trap Trading Strategy

Bear Trap Trading Strategy (Rules, Backtest, Performance)

While you might not have known it by its name, you would have fallen victim to the bear trap, especially if you love “calling the top” of a reversal trade.

Have you ever tried entering a short trade thinking the bullish trend is losing momentum and the price of the security you’re trading is about to bite the dust, only for you to receive a margin call? Then, you’ve just fallen victim to the bear trap.

In this article, we will cover what the bear trap is, how to spot it, answer a few of your questions, and show you how to avoid it in real-time. Let’s get straight into it and discuss the bear trap trading strategy.

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What is a Bear Trap in Trading?

Picture this: you are on your typical day, trying to scan through the market and analyze your favorite trading pair or stock. The price has been forming a succession of higher highs and higher lows, indicating the price is soaring high; it begins to look like the price has taken off without taking you along on the ride.

Suddenly, a bearish candle broke the last support zone in what looked to you as the best breakout setup of the ages. Not wanting to miss this opportunity again, you jumped in immediately, only to be welcomed by a large bullish candlestick that took you out of position. Game over.

Now, let’s take a step back and see what just happened. The trading market is a pool of liquidity with a lot of traps. One of those traps is the bear trap.

Bear trap pattern occurs in an uptrend market where the sellers are tricked into believing there will be a reversal when a bearish candle quickly breaks a significant low, only to issue a bullish candle that takes the sellers out and continues the former trend.

This move capitalizes on one of the fears plaguing retail traders: