Bear Trap

A bear trap is a market event where the price of a stock or index falls sharply and then quickly rebounds. This sudden drop can mislead traders into assuming a deeper decline is coming, prompting them to take short positions. However, when the price swiftly recovers, those who bet against the market face losses.

Bear traps often happen when large investors or institutions intentionally drive prices down, creating a negative outlook and encouraging others to sell. Once prices have dropped, these same players may buy back in, pushing the price higher and catching bearish traders off guard. Recognizing bear traps can help investors avoid making costly short-selling mistakes.