A bull trap is a false signal indicating that a declining trend in a cryptocurrency, stock or index has reversed and is heading upwards when, in fact, it will continue to decline.
A bull trap occurs when a trader or investor buys a cryptocurrency or stock that is about to breakout above a resistance level – a common technical analysis-based strategy. While most breakouts are preceded by strong moves higher, there are some cases when the stock quickly reverses direction. These are known as “bull traps” since the traders and investors that bought in are “trapped” in the trade.
Traders and investors can avoid bull traps by looking for confirmations following a breakout. For example, a trader may look for higher than average volume and bullish candlesticks following a breakout to confirm that the price is likely to move higher.
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Disclaimer – Thinking Crypto and Tony Edward are not financial or investment experts. You should do your own research on each cryptocurrency and make your own conclusions and decisions for investment. Invest at your own risk, only invest what you are willing to lose. This channel and its videos are just for educational purposes and NOT investment or financial advice.