The Bull Trap: Guide to Identifying and Escaping

Oh, how many times have I found myself trapped in those damn bullish traps! All traders have memories of trades that seemed obvious, but once inside, the market turned its back on us and we ended up losing.

These are the infamous "trading traps" that seduce unsuspecting people like us only to whip us when we bite the hook.

The most common of these traps is the bull trap. I'm going to tell you what the hell this is, how to identify it before it traps you, and most importantly: how to profit when others fall into it.

What Is a Bull Trap?

The bull trap occurs during a bullish trend when the price rises to a resistance, makes the typical breakout that we all expect, and after surpassing that resistance level... surprise! It turns back and leaves you trapped.

This pattern is treacherous because it gives you "confirmations" of a breakout that make anyone believe that the bullish rally continues. You enter by buying and, damn it, a few minutes later the price makes a sharp turn and starts an aggressive decline. Those with stop-loss are eliminated while the rest are left holding losing positions.

What really happens during a bullish trap?

They usually form after a long bullish trend. Buyers have had control for a long time and are likely about to exhaust their resources. This hypothesis is confirmed when the price finally enters resistance territory and shorter candles form. We can interpret this as many long traders taking profits.

Then, the market slows down before more buyers enter and try to push the price above the resistance. A "breakout" forms and novice buyers interpret this as a continuation of the bullish movement.

However, sellers, who always lurk in resistance areas, begin to flood the market with sell orders. Smart buyers start to close positions, and when sellers see that buying volume decreases, they attack even harder.

The resulting imbalance causes the trend to tilt in favor of the sellers. The stop-losses of new buyers fall like dominoes, giving more strength to the sellers. And those who did not place stop-losses remain trapped in a trend that is already against them.

How to Identify a Possible Bull Trap?

You don't have to be a genius to spot a bull trap if you know where to look:

1. Multiple Tests of the Resistance Level

The first signal is a strong bullish trend that reacts significantly at a specific resistance zone. When they reach a certain level, buyers seem to respect it, and the price pulls back before attempting to rise higher.

As a general rule: if the price tests a resistance several times after a prolonged bullish trend, be alert.

2. Unusually Large Bullish Candle

In the final phase of the trap, a huge bullish candle usually appears that dominates the previous ones.

This candle can mean several things:

• New buyers believing there is a breakout and entering en masse
• Manipulators pushing the price intentionally to attract the unwary
• Sellers temporarily letting buyers dominate to trigger limit orders above resistance

3. A Range is Formed

The bull trap usually forms a range-type pattern at the resistance level. The start of the trap is easy to identify because the huge candle I mentioned before breaks and closes outside of this range.

Common Bull Trap Patterns

There are several ways it can manifest, but they all follow the same concept: a resistance is tested, the price attempts to break it, and then the market collapses.

Pattern #1: The Rejected Double Top

It is characterized by two prominent candles that resemble the normal double top pattern, but the second shows massive rejection at the top with a long wick.

Pattern #2: The Bearish Engulfing

Candlestick patterns are crucial for identifying market reversal points. When an engulfing pattern forms after the classic bullish trap pattern, it is a clear signal that a strong bearish move is coming.

Pattern #3: The Failed Test

Another common pattern occurs when, after breaking the resistance zone, the price returns to test it but fails and collapses. This is the ultimate test after breaking a significant resistance.

How to Avoid Falling into the Trap?

1. Avoid Late Entries

A prolonged bullish trend is often a signal of this trap. The longer it has been rising, the more likely it is to form a trap. Don't be that idiot who enters when everyone is already exiting.

2. Do Not Buy at Resistance Levels

Yes, I know that "you have to follow the trend", but buying at resistances is financial suicide. It is much safer to buy at supports.

3. Wait for the Retests

If you want to enter after a resistance break, at least wait for the price to test the level ( now support ) and bounce before executing your buy order.

4. Observe the Price Action

Pay attention to what the price does as it approaches a resistance:

• If shorter candles form, there is a lack of volume and momentum.
• If long bearish candles appear with short bullish candles, the bears are taking control.
• If the candles have long wicks on top, sellers are slowing down the advance.

How to Trade with Bull Traps?

Method #1: Buy the Retests

If you want to buy at resistance, wait until the price drops to test the level and then open a buy order.

Method #2: Sell After Trend Reversal

The safest way to trade is to accept that the trend has changed and go with it. Wait for the price to break the resistance, retest it, close below it, and generate a confirming bearish pattern. Place your stop-loss above the resistance and your target at the next support.

Conclusion

Bull traps make inexperienced traders tremble, but by understanding how they form, they can become profitable setups.

This market can give us a lot of money, but only if we know how to read it correctly. Don't be another victim of these traps; turn them into your secret weapon and be the one who laughs all the way to the bank while others cry over their losses.