Commonly referred to as a false signal, a Bull Trap is the reversal of price direction of a declining asset after rallying and breaking a prior support level. A Bull Trap happens when buyers were unable to support a rally above a break out level. This market occurrence “traps” traders who traded on the buy signal and incurs losses on resulting long positions.
Traders can avoid a Bull Trap by using other technical indicators or pattern divergences that yield cues or confirmation following a breakout. Bullish candlesticks are some of the indicators traders can refer to during breakouts.
Bull Trap is the opposite of Bear Trap.