Bear Trap

AAA

DEFINITION of 'Bear Trap'

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.

INVESTOPEDIA EXPLAINS '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. Short Covering

    Buying back borrowed securities in order to close an open short ...
  2. Short Selling

    The sale of a security that is not owned by the seller, or that ...
  3. Bear Raid

    The illegal practice of ganging up to push a stock's price lower ...
  4. Short Squeeze

    A situation in which a heavily shorted stock or commodity moves ...
  5. Fakeout

    A term used in technical analysis to refer to a situation in ...
  6. Bear Market

    A market condition in which the prices of securities are falling, ...
Related Articles
  1. Bear markets can take a big bite out of the returns of long-term stockholders.
    Investing Basics

    Adapt To A Bear Market

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

    Cheap Stocks Or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
  3. Active Trading

    Is A Reversal On The Way? Consult Traders' Index

    Use this indicator to gauge the end of a price trend.
  4. Active Trading Fundamentals

    The Short And Distort: Stock Manipulation In A Bear Market

    High-quality stock reports needn't be confused with stock manipulators' dramatic claims.
  5. Active Trading Fundamentals

    Short Selling Tutorial

    Want to profit on declining stocks? This trading strategy does just that.
  6. What's a Marketable Security?
    Active Trading

    What's a Marketable Security?

    Marketable securities are financial instruments that can be readily bought and sold in a public market. The key feature is the ease with which it can be sold and converted into cash. Usually, ...
  7. Stock Analysis

    Buyinb Facebook Stock, A Beginner's Guide

    This straightforward guide helps the novice investor feel more adept at buying a stock, such as Facebook (FB).
  8. Trading Strategies

    How do technical analysts interpret the Average Directional Index (ADI)?

    Learn what the average directional index is and why technical analysts look towards ADX indicators to measure the strength of price trends.
  9. Investing News

    Alibaba's Top Competitors

    A look at Alibaba’s top competitors to understand perceived and real competitive threats to the Chinese ecommerce giant.
  10. Investing Basics

    Analysis of Companies with high goodwill

    High goodwill as a percentage of market cap can actually be a big red flag--it potentially means the company botched a major acquisition.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center