What is a bull trap?

A bull trap is a term for a false trading signal, deceiving a trader that the downtrend is over, the uptrend is coming back, causing the trader to jump in and trade in the direction. price increases. In fact, after the bull trap occurs, the price immediately falls back down again, causing the trader who bought to lose.

Bull trap - also known as false breakout - false breakout, false breakout.

Bull here means bull, the term representing bull market in finance. A trap is a trap

Where does a bull trap usually appear?

The bull trap's most frequent occurrence is at resistance zones. The price breaks above resistance, creating the feeling that there is a breakout of resistance and the uptrend will continue, stimulating traders to buy in, but then falling back below the resistance, causing traders already. Buying into a state of loss.

A bull trap can also occur at the point of intersection between the price and the downtrend line. Initially, the price cut above the downtrend line, creating the feeling of breaking the trend line and reversing the trend from bearish to bullish, but then fell below the trend line again, prompting traders to buy in when the price breaks. The downtrend line is broken and trapped in the bull trap.

Why is a bull trap dangerous for traders?

The bull trap is dangerous because if traders are inexperienced, they will be susceptible to bull trap and loss. After the bull trap has taken place, the price can reverse to the downside quickly. In case the trader has not yet placed a stop-loss order, the trader can lose money quickly.

How to prevent price traps?

Some ways to prevent price traps
  • Place a tight stop loss as soon as you enter a buy order
  • Wait for confirmation from trading volume. A new large volume of trading
  • A breakout candlestick pattern of resistance should be a strong candlestick pattern
  • Wait for the candle to continue after breaking the resistance to make sure the bull trap does not occur.
An example of how to prevent a bull trap

  • At point 1, price breaks resistance with the bad candlestick pattern + decreased volume ==> not recommended trading because it could be trapped by the bulls.
  • At point 2, the price breaks resistance with a strong candlestick pattern (bullish maruboz) + strong increasing trading volume ==> less likely to trap bulls.
  • At point 3, the price broke resistance with a strong candlestick pattern and increased trading volume. Then there is another bullish candle, creating confirmation for the uptrend ==> less likely to trap prices up.