• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
  • Best Managed Accounts
  • Forex Robots
  • Forex Brokers
  • Forex Signals
  • Social Trading Platforms

Forex Traders Guide

The Ultimate Forex Knowledge Base

  • Robots
  • Start Guide
  • Glossary
  • Basics
    • Currency Pairs
    • Charts
    • Candlesticks
    • Trading Tips
  • Strategies
    • Technical Analysis
    • Fundamental Analysis
    • Day Trading
    • Scalping
    • Swing Trading
    • Trend Following
  • News
  • Reviews
    • Forex Robots
    • Forex Brokers
  • Mustreads
  • Crypto Trading

Bull Trap

October 7, 2020 by Forex Winner Leave a Comment

A bull trap is a pseudo breakout scenario. What happens here is that a buyer goes into a trade with the belief of an upside. Sometimes such stocks do not give an upward trajectory and hit the support levels of the trader’s stop loss. What exactly makes the bull trap important? Let’s find out!

In a bull trap, long-term traders get forced to leave their positions as a result of rising incurred losses.It happens because of a reversal against a hitherto bullish trend. They are traps because they often come to traders without notice.

Best Forex Robots ›

Compare leading trading systems on the market

A bull trap features investors or traders purchasing an asset when it exceeds hitherto high resistance levels. Usually, breakouts beyond resistance levels often transition to greater peaks. Bull traps feature a sudden reverse after the breakout happens.

Bull Trap

Pointing out a bull trap

Identifying a bull trap is difficult. It is because when a breakout occurs, an asset most likely increases in value and not the other way. You may carry out fundamental and technical analysis of the stock or currency you seek to trade.

Find out if the asset has been overbought. Doing this may serve as a pointer to the possibility of a bearish reversal. You may also delay diving in for a bit to see if the trend gets sustained. There are a few key indicators for a bull trap. It often occurs during earning announcements, bear markets, and in news events when upward trajectories don’t last on the chart.

Avoiding a bull trap

The ideal strategy for avoiding the suckers’ rally is to create a stop-loss on your position. Doing this will ensure that you do not suffer huge losses even if you get caught in a bull trap. Traders have the option of some stop-losses, which include trailing, standard, and guaranteed.

A trailing stop is quite helpful when seeking to evade the suckers’ rally. This is because it trails behind the prevailing price using a set number of points. The trailing stop then closes your current position in a situation where the market value falls by that amount. 

The main benefit of this is that it will help you get enough profit while avoiding unnecessary losses caused by the bull trap. Moreover, you must watch the signals for a bull trap in order to avoid it. A smart trader would be on the lookout for more signals to stand a better chance to avoid a bull trap.  

Avoiding a bull trap

Trading bull traps

The easiest way to trade bull traps is to open a short position when you see that there is a bear trap. You can deploy strategies such as spread bets. Using these financial derivatives will help you get leverage on an asset even without you owning it, thus making it ideal to short. 

Final Word

A bull trap occurs when there appears to be an upward trajectory when a given asset exceeds certain resistance levels. Breakout resistances usually point out to the fact that the prevailing trend will proceed, which is not the case with the trap. Expert traders may lose out if the prices of the commodity or currency fall after it opened a positive outlook. Often, this is because of a breakout that exceeds the resistance, which may have confused the trader.

Best Forex Robots ›

Compare leading trading systems on the market

Filed Under: Charts, Forex Basics, Forex Glossary

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Best Forex Robots

  1. Techberry 8.7
  2. Happy Forex 8.0
  3. Forex Fury 7.7
  4. Promax Gold EA 6.8
  5. Gump EA 6.4

Best Forex Brokers

  1. Techberry 8.7
  2. XM 8.2
  3. eToro 8.1
  4. Pepperstone 8.1
  5. IG 8.0

Latest News

How to Predict Forex Movement?

November 30, 2022

The Red Dog Reversal: A Strategy for Day or Swing Trading

November 9, 2022

Tron DAO to Pull Out Additional 3 Billion TRX

Tron DAO to Pull Out Additional 3 Billion TRX

June 16, 2022

Footer

Forex Broker Reviews

nordfx

NordFX Review

November 14, 2019 By Forex Winner

Oanda Review

Oanda Review

May 2, 2019 By Forex Winner

city index

City Index Review

September 12, 2019 By Forex Winner

Forex Robot Reviews

Profit Lab EA Review

Profit Lab EA Review

June 28, 2022 By Forex Winner

GoodMorning EA

GoodMorning EA Review

June 23, 2022 By Forex Winner

FxHT Daily Trend EA Review

FxHT Daily Trend EA Review

June 22, 2022 By Forex Winner

EMAIL NEWSLETTER

Sign up to receive exclusive forex trading guides and insights from our team of experts!

Copyright © 2023 · Forex Traders Guide · About Us · Contact Us
Privacy Policy · Risk Disclosure