In stock market trading, a bull trap is an inaccurate signal that shows a
decreasing trend in a
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
or
index
Index (or its plural form indices) may refer to:
Arts, entertainment, and media Fictional entities
* Index (''A Certain Magical Index''), a character in the light novel series ''A Certain Magical Index''
* The Index, an item on a Halo megastru ...
has reversed and is now heading
upwards, when in fact, the security will continue to decline.
It is seen as a trap because the
bullish
Market sentiment, also known as investor attention, is the general prevailing attitude of investors as to anticipated Market trends, price development in a market. This attitude is the accumulation of a variety of fundamental analysis, fundamenta ...
investor purchases the stock, thinking it will increase in value, but is trapped with a poor performing stock whose value is still falling.
See also
*
Economic bubble
An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be c ...
*
Stock market bubble
A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation.
Behavioral finance theory attributes stock market bub ...
*
Speculation
In finance, speculation is the purchase of an asset (a commodity, good (economics), goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline i ...
*
Boom and bust
Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examini ...
*
Market trend
A market trend is a perceived tendency of financial markets to move in a particular direction over time. Analysts classify these trends as ''secular'' for long time-frames, ''primary'' for medium time-frames, and ''secondary'' for short time-fram ...
*
Dead cat bounce
In finance, a dead cat bounce is a small, brief recovery in the price of a declining stock. Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on Wall Street, is also popularly ap ...
References
Setting the Bull Trap (investorinsight.com)
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Behavioral finance
Business cycle
Stock market
Financial crises