A bull trap is a deceptive, short-lived upswing in price that lures traders into opening long positions just before the market reverses downward. It typically occurs near a technical resistance level that appears to have been broken—encouraging buyers to believe a new upward trend is beginning—only for the price to snap back below that level soon after. In effect, the “trap” springs when bullish traders are forced to exit at a loss or hold through a sharp drawdown as selling pressure resumes.
Bull traps often emerge in bear markets or during prolonged consolidations. Momentum indicators may briefly flash “buy” signals and news headlines can add excitement, yet the underlying market structure remains weak: volume on the breakout is thin, broader sentiment is still pessimistic, and higher-timeframe trends point down. Market makers and large holders can exploit this by pushing prices just high enough to trigger stop buys, creating a false breakout that provides liquidity for their own sell orders.
To reduce the risk of falling into a bull trap, traders look for confirming evidence before entering: strong volume accompanying the breakout, multiple daily closes above resistance, divergence-free oscillators, and alignment with macro fundamentals. Risk management—using tight stop-losses, scaling in gradually, or waiting for a pullback retest—helps limit exposure if the move fails. Remember: patience during uncertain breakouts is usually cheaper than reacting to a reversal after you’re already trapped.
