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Bull Trap

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Bull Trap

A bull trap is a false signal in the stock market that suggests a security or index is about to move higher when in fact the opposite is true. It is a situation in which an investor buys a stock believing that the price will continue to rise, only to find out that the price has reversed and is now falling. Bull traps are created when a stock or index breaks out of a trading range and then quickly reverses direction, trapping investors who bought the stock in the belief that the breakout was the start of a new uptrend.

History of the Term

The term โ€œbull trapโ€ was first used in the late 19th century by stock market traders to describe a situation in which a stock or index appears to be breaking out of a trading range, only to quickly reverse direction and trap investors who bought the stock in the belief that the breakout was the start of a new uptrend. The term has since been adopted by investors and traders to describe any situation in which a stock or index appears to be breaking out of a trading range, only to quickly reverse direction and trap investors who bought the stock in the belief that the breakout was the start of a new uptrend.

Comparison Table

Term Definition
Bull Trap A false signal in the stock market that suggests a security or index is about to move higher when in fact the opposite is true.
Bear Trap A false signal in the stock market that suggests a security or index is about to move lower when in fact the opposite is true.
Breakout A situation in which a stock or index breaks out of a trading range.
Reversal A situation in which a stock or index quickly reverses direction.

Summary

A bull trap is a false signal in the stock market that suggests a security or index is about to move higher when in fact the opposite is true. It is created when a stock or index breaks out of a trading range and then quickly reverses direction, trapping investors who bought the stock in the belief that the breakout was the start of a new uptrend. For more information about bull traps, investors can visit websites such as Investopedia, The Balance, and MarketWatch.

See Also

  • Bear Trap
  • Breakout
  • Reversal
  • Technical Analysis
  • Support and Resistance
  • Trendlines
  • Moving Averages
  • Volume
  • Momentum
  • Relative Strength Index (RSI)

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