Bear Trap

What is a 'Bear Trap'

A bear trap is a false signal that the rising trend of a stock or index has reversed when it has not. A bear trap prompts traders to place shorts on the stock or index, since they expect the underlying to decline in value. Instead of declining further, the investment stays flat, or slightly recovers.

BREAKING DOWN 'Bear Trap'

Investors should always consider a stop-loss order when executing trades, in order to avoid the heavy losses that can come out of a bear trap trade. Most investors who fall into a bear trap do so early in the trading session, and analyzing opening bell trends should indicate how often a particular investment falls in value early in the day, compared to later on.

RELATED TERMS
  1. Bull Trap

    A false signal indicating that a declining trend in a stock or ...
  2. Superiority Trap

    A psychological or behavioral trap that leads people to believe ...
  3. Relativity Trap

    A psychological or behavioral trap that leads people to make ...
  4. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
  5. Liquidity Trap

    A situation in which prevailing interest rates are low and savings ...
  6. Bear Market Rally

    A period in which prices of stocks increase during a bear market. ...
Related Articles
  1. Investing

    5 Methods To Avoid Value Traps

    Learn about five key factors that can help investors identify and avoid value traps in their stock market portfolio selections.
  2. Managing Wealth

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  3. Investing

    Adapt To A Bear Market

    Learn how your portfolio should evolve to suit bear market conditions.
  4. Investing

    This Is The Biggest Mistake Value Investors Can Make...

    What separates a successful value investor from the pack? Experience. The world's top value investors will tell you that they all began their careers by buying value stocks too early. With time, ...
  5. ETFs & Mutual Funds

    Value Traps: Bargain Hunters Beware!

    Find out how to avoid getting sucked in by a deceiving bargain stock.
  6. ETFs & Mutual Funds

    Market Bottom: Are We There Yet?

    No one rings a bell when the bear market's over, but that doesn't mean there's no way to predict a bottom.
  7. Markets

    Profiting In Bear And Bull Markets

    There are many ways to profit in both bear and bull markets. The key to success is using the tools for each market to their full advantage.
  8. Markets

    Bear Market

    A financial market with declining asset prices fueled by investors’ pessimism, lack of confidence and negative expectations. While bear markets are partly based on actual investment performance, ...
  9. Markets

    The Lost Decade: Lessons From Japan's Real Estate Crisis

    Find out what America can learn from Japan's liquidity trap and credit crunch.
  10. Investing

    Timing a Short Sale

    The timing of a short sale is of critical importance, since stocks typically decline much faster than they advance. A sizeable gain in a stock over a multi-year period can be wiped out in a couple ...
RELATED FAQS
  1. What are common investing mistakes in bear markets?

    Learn why investing in a tumultuous market can be challenging even for the most experienced investors. Avoiding these common ... Read Answer >>
  2. What are the signs of a bear market rally?

    Read about some of the signs of a bear market rally, an unpredictable bull movement that takes place in the middle of a stronger ... Read Answer >>
  3. What are the safest investments during a bear market?

    Learn what investments carry the least amount of risk during a bear market and how they can be used to hedge against falling ... Read Answer >>
  4. What is a common strategy traders implement when using the Mass Index?

    Learn about the mass index technical indicator and the common market reversal trading strategy that is designed to be utilized ... Read Answer >>
  5. What is a common strategy traders implement when using the Force Index?

    Learn about how traders and analysts use a momentum oscillator called the force index to measure trend strength for a given ... Read Answer >>
  6. How do experienced traders identify false signals in the market?

    Learn how traders identify false signals in the market when using indicators and strategies to better identify true market ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center