Recently, while organizing market history, I discovered a pretty interesting phenomenon—many people tend to be confused during bear markets, especially when short-term rebounds occur.

A bear market is actually easy to define: it’s when asset prices drop more than 20% from their highs, and this downward trend can last for months or even years. But what truly tests investors isn’t the bear market itself, but the deceptive rebounds that happen within it. The so-called “bear trap” refers to this situation—sudden upward movements lasting days or weeks amid a persistent decline, leading many to mistakenly think a bull market has arrived, only to get caught when prices fall back.

Looking at history makes this clear. The 2022 bear market was triggered by the global central banks’ frantic money printing after the pandemic, causing inflation to soar, coupled with the Ukraine-Russia war pushing energy prices higher. The Federal Reserve was forced to raise interest rates sharply and shrink its balance sheet. Market confidence collapsed suddenly, especially hitting the tech stocks that had surged in the previous two years. But during this process, there were definitely several rebounds that made people think the bottom was in—classic bear traps.

Compare that to the 2020 pandemic crash, where although the decline was shocking (the Dow Jones dropped from a high of 29,568 in February to 18,213 on March 23), global central banks learned from the 2008 crisis and immediately launched quantitative easing to stabilize liquidity. The reversal only took a little over a month, followed by two years of a super bull market. That was a true bottom, not a bear trap.

So how can we tell if it’s a genuine reversal or a bear trap? I’ve noticed some key signals: more than 50% of stocks rising, over 55% of stocks hitting new highs within 20 days, and 90% of stocks trading above their 10-day moving average. Unless these conditions are met, or the market rises more than 20% to truly exit the bear market, it’s usually just a rebound.

Looking at longer-term history, the S&P 500 has experienced 19 bear markets over the past 140 years, with an average decline of 37.3% and lasting about 289 days. But some bear markets are especially fierce—like the 2008 financial crisis, which lasted from October 2007 to March 2009, with a decline of 53.4%, and took four years to recover to the 2007 high. The 1973-74 oil crisis was even more severe, with the S&P 500 falling 48% over 21 months, driven by stagflation and economic recession occurring simultaneously with soaring inflation.

Bear markets are usually accompanied by economic recession, high unemployment, and loss of confidence. Companies cut back on hiring and investment, consumers tighten their spending, and investors sell off assets—all of which cause stock prices to plummet. Bubbles bursting is also a common cause; the 2000 dot-com bubble is a classic example—many high-tech companies with no real profits were overhyped, and once investors started pulling out, a stampede ensued.

My observations on facing bear markets are as follows. First, keep enough cash on hand to reduce leverage and risk. Second, focus on sectors less affected by economic cycles, like healthcare stocks. If you want to bottom-fish, choose high-quality stocks with moats and competitive advantages that can last over three years; wait until they fall to their historical low price-to-earnings ratios before gradually entering positions.

Another tool worth paying attention to is—since bear markets have a high probability of decline—short-selling can have a higher success rate. Derivative instruments like CFDs allow you to find investment opportunities even in bear markets, whether shorting indices, forex, or individual stocks.

Finally, I want to say that bear markets aren’t scary; what’s scary is being fooled into a bear trap. As long as you can identify the start of a bear market early and use reasonable tools to protect your assets, there are opportunities for profit on both sides. The key is patience, strict stop-loss and take-profit rules, and not being misled by short-term rebounds. Bear traps test whether you have the discipline to stay calm.