Bear traps: what they are and how they work

Bear traps
may conjure up images of famous fur trappers and mountain men like James Beckwourth or Jedidiah Smith, but these men weren’t as deadly to brokerage accounts as bear traps chart models are.


As a short seller, the market presents a particular risk. Your losses are much more amplified and exponential on the short side. This creates a vulnerability in certain situations that bulls can take advantage of.

Think of it this way. If you buy a stock at $10 and it goes at $0, you’ve lost your entire investment. However, if we shorten a stock to $10, what happens if it goes to $30? Not only did you lose your original investment, you are now in debt. This small aspect of short selling can often trigger happy short sellers who are willing to cry uncle when their positions go against them.

On this basis, when pocket-heavy bulls know that the shorts are digging into one position, they can support the title in an attempt to “squeeze” the shorts over their high water mark. Once this happens, the short hedge can fuel a higher stock price, giving bulls the liquidity they need to sell their positions.

But, first, the trap for bears must be set.


There are many reasons behind what causes a graphic model, but a bear trap is pretty simple. The reason is to trap sellers in the open. And like any other graphical model, it takes a lot of pattern recognition to locate this configuration.

Here are some things you want to look for to read a Bear traps flag template:

  1. The configuration should look like it’s about to break. Ideally, you’ll want a nice run — maybe even parabolic in nature. The flag should therefore resemble one of the triangular motifs we mentioned earlier.
  2. As the title slowly bounces and contracts into the flag, you want to see the break. This sets the hook for bears. Like the symmetrical triangular pattern, you want bears to chase the broth.
  3. Absorption or soaking action. Now that the bears feel firmly in control, you want to see the stock stall. Ideally, this will occur after a kill candle at high volume and near or below a previous support level.
  4. Claim and gather. After the kill candle, if the title is not dead, it is better to be careful. This is usually where the carnage for bears who were confident that the stock was dead begins.


Now that you know what to look for, let’s visualize it with some real examples of Bear traps in trading.

Bear traps Example 1

The first example is a failed breakdown of SOLY stocks. This stock was a lower free float, a low-priced stock that had increased considerably intraday. After cutting to heavy volume at noon, we saw a huge candle shape. This was an ideal setup for the bloodbath 1-3 hours, but as you can see, the selling pressure of the shares was absorbed.

Example of a bear trap 2

In this example, we’ll point to a popular personality on Twitter called AllDayFaders. He has recognized traps often over the years and explains them well in this thread:

As you can see, it is better to wait for the new failed test if you are a low-cheeky trader.

Example of Bear traps 3

Often, if you can combine multiple strategies, it will help your chances of success.

Bear Trap and Price Action Trading

Not only do we get a hammer candle reversal, but it also comes in the wake of a descending triangular pattern. What better way to combine as many chart templates as possible to create your business thesis. And that’s exactly what you should do. Combining chart patterns and trading elements together only increases your chances of success.

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