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. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
  6. Bear Market

    A market condition in which the prices of securities are falling, ...
RELATED FAQS
  1. Why do we need a secondary market?

    In secondary markets, investors exchange with each other rather than with the issuing entity. Through massive series of independent ... Read Full Answer >>
  2. What is a direct rights offering?

    A direct rights offering is an offer made by a company, directly to existing shareholders, granting them rights to purchase ... Read Full Answer >>
  3. What are the types of share capital?

    Share capital refers to the funds a company receives from selling ownership shares to the public. A company that issues 1, ... Read Full Answer >>
  4. What are the pros and cons of using the S&P 500 as a benchmark?

    The Standard & Poor's 500 Index is the most commonly used benchmark for determining the state of the overall economy. ... Read Full Answer >>
  5. What does 100-plus accrued interest mean?

    The phrase "100-plus accrued interest" can be seen in reference to bond valuation and bond quotes. It means a bond has been ... Read Full Answer >>
  6. Are mid-cap stocks more profitable than large-cap stocks?

    A mid-cap stock may perform better than a large-cap stock. The stock market can be stable or volatile, and many factors affect ... Read Full Answer >>
Related Articles
  1. 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. Investing Basics

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  7. Investing

    When Will The Bull Market End?

    A few weeks ago, the current bull market celebrated its sixth anniversary, making it one of the longest in history.
  8. Investing Basics

    Explaining Rights Offering

    A rights offering is an offer by a company to its existing shareholders of the right to buy additional shares in proportion to the number they already own.
  9. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  10. Investing Basics

    What is a Share?

    A share – also called a stock -- is a unit of ownership in a corporation or financial asset.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center