Definition of Bull trap:
A bull trap is a false signal, referring to a declining trend in a stock, index, or other security that reverses after a convincing rally and breaks a prior support level. The move "traps" traders or investors that acted on the buy signal and generates losses on resulting long positions. A bull trap may also refer to a whipsaw pattern.
The opposite of a bull trap is a bear trap, which occurs when sellers fail to press a decline below a breakdown level.
A situation in which investors enter long positions near the top of an up cycle. When the market unexpectedly reverses, buyers begin to sell their way out of their losing positions creating downward price momentum and panic selling among the remaining longs still in the market. When the selling complete, the market often resumes its upward trend. Compare to Bear Trap. See Bull Squeeze; Bear Squeeze; Whipsaw.
How to use Bull trap in a sentence?
- A bull trap denotes a reversal that forces market participants on the wrong side of price action to exit positions with unexpected losses.
- Bull traps occur when buyers fail to support a rally above a breakout level.
- Traders and investors can lower the frequency of bull traps by seeking confirmation following a breakout through technical indicators and/or pattern divergences.
Meaning of Bull trap & Bull trap Definition