Glossary Term

Bear Trap

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Bear traps occur when an asset’s price drops and provides traders with a false bearish signal. Bear traps entice market participants to sell, or go short, expecting that the amount will continue to fall even further. These situations are called traps because the drop proves to be just temporary, at which point it begins to rise to former levels, causing everyone who sold or went short of incurring substantial losses and/or receive margin calls. Bear traps, like everything else in trading, are exacerbated by the use of leverage.

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