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. Value Trap

    A stock that appears to be cheap because the stock has been trading ...
  3. Superiority Trap

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

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

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

    A situation in which prevailing interest rates are low and savings ...
Related Articles
  1. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  2. Investing Basics

    Avoid These Common Investing Psychology Traps

    There are a number of very common psychological traps or errors that investors typically make. You can save a lot of money and misery by avoiding them.
  3. Fundamental Analysis

    Avoid These 3 Value Trap Stocks

    Investors are wise to do their homework and avoid the following companies that might be value traps.
  4. Options & Futures

    Bear Funds: A Bullish Stance On Bad Times

    Even if the market is in a decline your portfolio doesn't have to be.
  5. Investing Basics

    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.
  6. Active Trading Fundamentals

    Digging Deeper Into Bull And Bear Markets

    Discover why it's important to know the characteristics of the two types of market conditions.
  7. Investing

    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.
  8. Active Trading Fundamentals

    Surviving Bear Country

    Stay calm, play dead and keep your eyes open for attractive valuations.
  9. Mutual Funds & ETFs

    Value Traps: Bargain Hunters Beware!

    Find out how to avoid getting sucked in by a deceiving bargain stock.
  10. Options & Futures

    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.
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. How should young people invest in a bear market?

    Learn strategies young investors can implement during a bear market that present the greatest opportunity for long-term investment ... Read Answer >>
  4. Where did the bull and bear market get their names?

    First of all, let's remember that bears are sluggish and bulls spirited and burly. The terms are used to describe general ... Read Answer >>
  5. How can you avoid the sunk cost trap?

    Read out how the sunk cost trap works, an example of how it affects decision-making and how to avoid it when making economic ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center