Glossary

Beartrap

A phase when investors prepare their portfolio for a bear market, but prices rise, however, and put investors in a tight spot.

A bear trap occurs when investors expect falling prices and therefore make either short sales or remain passive. With prices rising, contrary to expectations, these pessimists are trapped because they either have to close their short positions (i.e. they have to purchase the respective securities in order to limit the losses from their short positions), or they have to buy the already increased shares in order to benefit from the upward movement. 

The necessity of having to cover short positions in a rising market is also referred to as a short squeeze.

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