http://www.ThinkingCrypto.com 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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