Definition of Bear trap:
A bear trap is a technical pattern that occurs when the performance of a stock, index, or other financial instrument incorrectly signals a reversal of a rising price trend. The trap is thus a false reversal of a declining price trend. Bear traps can tempt investors into taking long positions based on anticipation of price movements which do not end up taking place.
A trap designed to catch bears; especially one constructed of a pair of metal jaws which snap shut around the leg.
A situation in which a rising price trend misleadingly appears to have been reversed, or it is wrongly believed that shares will not fall any further.
Anything likened to a trap for bears, typically with respect to its powerful or immovable grip; especially an inescapable predicament, a painful constraint or obstruction.
A bear trap can prompt a market participant to expect a decline in the value of a financial instrument, prompting the execution of a short position on the asset. However, the value of the asset stays flat or rallies in this scenario and the participant is forced to incur a loss. A bullish trader may sell a declining asset in order to retain profits while a bearish trader may attempt to short that asset, with the intention of buying it back after the price has dropped to a certain level. If that downward trend never occurs or reverses after a brief period, the price reversal is identified as a bear trap.
A type of bicycle pedal reminiscent in shape of an open bear trap.
A situation in which investors who sold short near the bottom of a down cycle find themselves trapped when the market unexpectedly reverses. As longs begin to enter the market, the shorts start buying their way out of their losing positions, which further fuels the upward price momentum and panic buying for the remaining short-sellers who are still in the market. When the short covering is complete, the upward momentum slows and the market often resumes its downward trend. Compare to Bull Trap. See Whipsaw.
How to use Bear trap in a sentence?
- A bear trap is a false technical indication of a reversal from a down- to an up-market that can lure unsuspecting investors.
- A bear trap is often triggered by a decline that induces market participants to open short sales, which then lose value in a reversal when shorts are forced to cover.
- These can occur in all types of asset markets, including equities, futures, bonds, and currencies.
Meaning of Bear trap & Bear trap Definition