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- Bear Trap
Bear Trap
A bear trap occurs when the performance of a stock, index, or other financial instrument quickly drops before immediately rising again. Bear traps can tempt investors to take short positions because they are anticipating a further decline in price.
A bear trap can occur when institutions attempt to alleviate selling pressure by pushing prices lower, so that the markets look bearish and investors are incentivized to sell stock. If investors sell the stock and the price drops, institutions reenter the market and the stock price rises with increased demand, generating losses for the investors who sold.
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